* Fed funds futures show 31% chance of September hike, down

from 40% on Wednesday

* July producer prices are unchanged after revised 0.1% drop

in June

* Dollar index slips 0.07% to 99.88 while euro rises 0.1% to

$1.1536

(Updated in New York morning time)

By Karen Brettell

NEW YORK, Aug 13 (Reuters) - The dollar fell on Thursday

after data showed producer prices were unchanged in July, coming

after Wednesday's consumer price inflation report that showed

that U.S. consumer prices barely increased last month.

The flat reading in the Producer Price Index for final

demand last month followed a revised 0.1% drop in June.

Economists polled by Reuters had forecast the PPI rebounding

0.2%.

The soft data led traders to further pare back expectations

of a Federal Reserve rate hike in September. Fed funds futures

now show a 31% probability of a September hike, down from 40% on

Wednesday and 55% a week earlier.

Noel Dixon, senior macro strategist at State Street, said

the components of Thursday's report that feed into the personal

consumption expenditures data due later this month suggest that

the report "should be pretty good."

"My takeaway from that number and yesterday's number is that

it helps to make the case for the Fed staying on hold in

September," Dixon said.

The dollar index, which measures the greenback

against a basket of currencies including the yen and the euro,

fell 0.07% to 99.88, with the euro up 0.1% at $1.1536.

Traders have been weighing whether the Fed will need to

raise rates, as inflation remains stubbornly above the central

bank's 2% target and oil prices climb amid Iran-related

disruptions in the Strait of Hormuz.

Oil prices declined on Thursday as investors assessed

prospects for weaker global demand this year and higher U.S.

crude stocks.

Other data on Thursday showed that the number of Americans

filing claims for unemployment benefits increased moderately

last week, suggesting that the labor market remains stable

despite July's surprise job losses.

The Japanese yen strengthened 0.14% to 159.19 per

dollar.

The Japanese currency has given back some of the gains from

last month's historic joint intervention by the U.S. and Japan.

That intervention has fueled market bets that the Bank of Japan

will need to hike rates faster and further, raising the stakes

for the currency heading into next month's policy meeting.

The pound strengthened 0.08% to $1.3503. The UK

economy unexpectedly grew in June, thanks to a dip in energy

prices, along with the start of the men's soccer World Cup and

hot weather.

The Norwegian crown weakened after Norges Bank left interest

rates unchanged, as expected, while flagging that inflation had

softened recently. At 4.25%, Norway holds one of the highest

interest rates among the 10 most developed economies, and its

status as an oil and gas exporter has given the crown a boost

this year.

Against the Norwegian krone,, the

dollar strengthened 0.34% to 9.515.