(Adds comment, U.S. data, updates prices, changes byline, dateline; previous LONDON)
* Dollar climbs 1 percent vs yen
* Sterling hits highest since Brexit vote result
* North Korea fires missile over Japan that lands in Pacific
* U.S. retail sales fall unexpectedly
NEW YORK, Sept 15 (Reuters) - The dollar weakened against most major currencies on Friday, weighed down by an unexpected decline in U.S. retail sales last month that once again dimmed expectations for an interest rate increase in December.
"Noise in the datastream coming out of the American economy continues to confound markets, obscuring positive fundamentals that might otherwise support monetary tightening expectations," said, Karl Schamotta, director, Global Product & Market Strategy, at Cambridge Global Payments in Toronto.
U.S. retail sales unexpectedly fell in August as Hurricane Harvey likely depressed motor vehicle purchases, dropping 0.2 percent last month. Economists polled by Reuters had forecast retail sales nudging up 0.1 percent.
Sterling, meanwhile, slammed the dollar as well, after a Bank of England policymaker opened the door for a possible rate increase in the coming months. That helped push the pound to its highest since the results of last June's vote to leave the European Union, putting it on track for its best week against the dollar since October 2009.
Currency traders also brushed off the latest missile fired by North Korea in a volatile day of trading on Friday.
The dollar initially dipped against the safe-haven yen after North Korea fired a missile early on Friday that flew over Japan's northern island of Hokkaido far over into the Pacific Ocean.
However, the yen's fall against the dollar on Friday raised questions about investors' willingness to buy Japanese assets when Japan is in North Korea's firing line.
After slipping as low as 109.57 yen in Asian trading, the dollar rebounded, rising 0.8 percent to 111.07 yen. It was on track for its best week against the yen since November.
The missile was launched just days after the United Nations Security Council stepped up sanctions against North Korea over its latest nuclear test. Analysts said markets had been expecting a reaction from Pyongyang.
Britain's pound, meanwhile surged above $1.36 on Friday.
The pound had already recorded its best day since April on Thursday, after investors brought forward their rate hike bets following the Bank of England's signal that it would tighten soon.
It built on those gains on Friday after BoE policymaker Gertjan Vlieghe said "the appropriate time for a rise in Bank Rate might be as early as in the coming months".
The euro was up 0.4 percent at $1.1962, staying below a 2-1/2 year high set last week. That pushed the dollar index to 91.779, down 0.4 percent on the day.
(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Jemima Kelly in London; editing by Grant McCool)