(Adds BOE's Carney, fresh prices)
* Euro rises 0.7 pct after hitting 12-year low vs dollar
* U.S. retail sales disappoint, compound dollar weakness
* Kiwi up more than 1.6 pct versus U.S. dollar
By Daniel Bases
NEW YORK, March 12 (Reuters) - The dollar fell against the euro on Thursday as investors took profits after a powerful rally brought the greenback to a 12-year high in early trade, then surprisingly weak U.S. February retail sales stoked the sell-off.
The euro remained down 12 percent year-to-date, careening toward parity with the dollar as monetary policies ease in Europe and elsewhere at a time of stronger U.S. economic growth and expectations the Federal Reserve will start raising interest rates this year.
The dollar weakened after the U.S. Commerce Department reported a surprising 0.6 percent drop in retail sales in February as harsh winter weather dented sales that were expected to rise 0.3 percent.
"I think we're finally seeing some early signs of fatigue in the dollar's rally," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington, D.C.
"Caution is on the rise ahead of next week's Fed meeting. On the one hand, steady job growth has many expecting the Fed to lay the ground work for an eventual rate hike. But this rapid rise in the dollar could warrant a warning from the Fed as a potential threat to growth," he said.
The euro rose 0.71 percent to $1.06220 on the EBS trading platform, recovering from a session low of $1.0494, its weakest since January 2003.
The European Central Bank launched a 1.1 trillion euro bond-buying program this week, denting the euro's appeal by driving yields of many euro zone bonds to all-time lows.
A 10-year German bond yields 0.25 percent versus 2.10 percent on a benchmark 10-year U.S. Treasury.
The euro rose 0.60 percent to 128.86 yen while the dollar fell 0.10 percent to 121.335 yen.
"Unless we get protests from other trading partners about a weakening euro, I think the trend will continue. There have been some noises from the U.S. but as long as the Europeans are happy with the currency weakness, the euro can go down further," said Yujiro Goto, currency analyst at Nomura.
Sterling fell 0.50 percent to a 20-month low of $1.4850 . Bank of England Governor Mark Carney signaled he was in no rush to raise interest rates, disappointing some who expected a rate hike in early 2016.
New Zealand's dollar gained 1.3 percent against the U.S. dollar after the Reserve Bank of New Zealand sounded less dovish than markets had expected and kept rates steady at 3.5 percent. (Additional reporting by Jemima Kelly, Anirban Nag and Ahmed Aboulenein in London; Reporting By Daniel Bases; Editing by Meredith Mazzilli and David Gregorio)