* China central bank sets slightly stronger yuan midpoint
* Markets reprice higher chance of Fed Sept rate hike
* Kiwi falls after weak New Zealand retail sales data
By Hideyuki Sano
TOKYO, Aug 14 (Reuters) - The dollar was steady on Friday after China's central bank appeared to have stopped guiding the yuan lower for now, easing concerns that a weaker Chinese currency could derail plans by the U.S. Federal Reserve to raise interest rates.
The dollar traded at 124.40 yen JPY= , flat from late U.S. levels and above this week's low of 124.21 yen. For the week, it was up about 0.1 percent.
Volume in Tokyo was relatively thin, with many businesses winding down for the mid-August Obon holiday. Although there are no public holidays, many people take summer vacations around this time, and some offices close.
"Company people have gone on their breaks and left their orders with banks," said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.
Some commercial accounts would sell dollars above 125.50, he added.
The euro fetched $1.1143 EUR= , down slightly from late U.S. levels. Still, it was up 1.6 percent on the week, as the dollar has been hit by speculation that the U.S. might not want a stronger dollar either if China pushes down the yuan.
The euro got a lift this week as investors unwound euro-funded carry trades in the yuan and other emerging market currencies, which were hit hard by the devaluation.
Emerging Asian currencies continued to fall on Friday, on track for steep weekly losses, with the Malaysian ringgit skidding to a fresh pre-peg 17-year low.
On Friday, the People's Bank of China set the yuan midpoint at 6.3990 yuan to the dollar, slightly stronger than Thursday's levels.
The central bank said on Thursday there was no reason for the yuan to fall further given the country's strong economic fundamentals.
Beijing's moves some eased concerns that a cheaper yuan could trigger a "currency war", or a competition among the world's biggest economies to cheapen their own currencies to seek a competitive edge.
U.S. interest rate futures prices edged down and U.S. bond yields bounced back as investors priced in an increased likelihood of a Fed rate hike in September. Solid U.S. retail sales data also supported the case for an early rate hike.
The dollar index, which tracks a basket of six major currencies, stood at 96.420 .DXY , off a one-month low of 95.926 hit on Tuesday.
Still, market players are not sure how much more the dollar can gain, assuming the yuan could fall further in the face of a slowdown in the Chinese economy.
"The latest concerns triggered by the sudden policy action may be subsiding a tad. But there is no change in the fact that the Chinese economy is slowing," said Masafumi Yamamoto, senior strategist at Monex Securities.
"I think the yuan has become overvalued as other countries tried to cheapen their currencies and it will keep falling, playing catch-up," he added.
While most major currencies saw limited moves on Friday, the New Zealand dollar fell after domestic retail sales had the slowest increase in two years, cementing expectations the Reserve Bank of New Zealand will cut rates.
The New Zealand dollar traded down 0.5 percent at $0.6535 NZD=D4 , down about 1.3 percent for the week.