NEW YORK (AP) _ The dollar rose nearly 2 percent against the yen and advanced in most other foreign-exchange dealings Thursday on positive market reaction to benign U.S. inflation data and another spasm of currency turmoil in Southeast Asia.

The demand for dollars partly reversed the U.S. currency's sharp drop the day before over concern about higher interest rates in Japan and Germany and reports suggesting a possible delay in Europe's single currency plan.

But the dollar's rebound against the mark was muted by the German currency's own strength against the yen and a new warning from a senior Bundesbank official suggesting it might raise rates soon.

In intraday dealings, the dollar traded as high as 118.10 yen, the best level in a week, before settling in New York at 117.94 yen, up from 115.69 yen Wednesday.

The dollar also reached an intraday high of 1.8472 marks before settling in New York at 1.8407, up from 1.8352. The pound settled in New York at $1.5906, up from $1.5840.

Traders said the dollar largely tracked the U.S. bond market, a pattern that first emerged last week when American stock and bond prices fell sharply on anxiety about inflationary pressure and a possible retreat by Japanese and other foreign investors in U.S. assets.

Bonds rallied Thursday after the government reported that consumer prices and industrial production both rose by 0.2 percent in July. The increases were well within expectations and helped assuage inflation concerns.

``The rebound in the dollar today put us back toward levels of last week,'' said Audrey McNiff, vice president of foreign exchange at Goldman, Sachs & Co. in New York.

She said the strong move in the dollar vs. the yen in particular reflected some eased fears that ``the Japanese might not want to continue their investment procedures in the U.S.'' Japanese investors are important buyers of U.S. Treasury bonds.

The dollar also derived some strength from a 7 percent plunge in the Indonesian ruppiah after the government loosened restraints on the currency, putting new pressure on the Thai baht, Malaysian ringgit and Philippine peso that have weakened in recent weeks.

The devaluation raised some concern that the yen is getting too expensive relative to those currencies and will have to fall in order for Japanese products to remain affordable in Southeast Asia.

``It's hard to explain the strong move up in the dollar vs. the yen, but clearly the Indonesia thing was involved in this,'' said John McCarthy, senior vice president of foreign exchange at ING Capital Markets Inc. in New York. ``There's concern that Japan is losing competitiveness with its Southeast Asian trading partners.''

The dollar's gains were trimmed later in the day after Johann Wilhelm Gaddum, the Bundesbank vice president, said the central bank remains alert to exaggerations in the currency market and will maintain maximum flexibility in setting interest rates.

Gaddum's remarks, made in an interview to be published Friday in the German financial daily Handelsblatt, were viewed as another militant warning that the Bundesbank will use higher rates to defend the mark and repress any sign of inflation, its primary responsibility.

Traders said Gaddum's remarks were considered significant partly because he manages the weekly securities repurchase operations on Tuesdays, a key Bundesbank tool for regulating the banking system and an important barometer of interest rate trends in Germany.

There has been speculation for weeks that the Bundesbank will raise a short-term rate in these operations called the securities repurchase rate. It has remained at 3 percent for a year and any increase would mark the first tightening of rates since 1992.

Other late dollar rates in New York, compared with late Wednesday: 1.5181 Swiss francs, up from 1.5111; 6.2040 French francs, up from 6.1885; 1,798.50 Italian lire, up from 1,793.00; 1.3909 Canadian dollars, down from 1.3926.