(Updates prices)

By Kevin Plumberg

NEW YORK, Dec 14 (Reuters) - The U.S. dollar rose sharply on Friday, posting its largest daily increase against the euro in almost three years, after strong U.S. consumer price data trimmed expectations for further interest rate cuts by the Federal Reserve.

The dollar rallied against major currencies for the third consecutive week, bolstered by a string of U.S. economic reports showing higher-than-expected growth in consumer spending and higher inflation, though the data eased some concern that the credit crisis would drag the U.S. economy into a recession.

U.S. consumer price inflation rose to 4.3 percent for the November year, its highest level since June 2006, while the core rate excluding volatile food and energy prices rose to 2.3 percent for the year, limiting the Fed's ability to cut interest rates in 2008.

"More evidence of rising U.S. inflation underlines the Federal Reserve's policy bind and raises chances the central bank will stick to non-interest rate easing liquidity solutions for the struggling money market," said Ashraf Laidi, chief currency analyst at CMC Markets USA in New York.

That should "spare the U.S. currency from interest rate cuts and help it from a relative yield perspective," he added.

By mid afternoon, the euro fell 1.4 percent to $1.4420 EUR= against the dollar, the lowest since late October, according to Reuters data. The euro is on track to post its largest daily fall since at least January 2005.

"We think this can go for another couple of cents, with the euro probably headed initially to $1.4360 or so and maybe as far as $1.40," said Marc Chandler, global head of FX strategy at Brown Brothers Harriman in New York.