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US STOCKS-Wall St falls as losses in bank stocks drag

* Gold prices rise to one-month high; dollar drops

* J.C. Penney down on weak same-store sales

* GE falls after Deutsche Bank downgrades to "sell"

* Indexes down: Dow 0.16 pct, S&P 0.20 pct, Nasdaq 0.04 pct (Updates to early afternoon)

By Yashaswini Swamynathan

May 12 (Reuters) - U.S. stocks edged lower on Friday and were on track to book losses for the week as weak economic data weighed on financial shares.

A risk-off sentiment gripped Wall Street this week after President Donald Trump unexpectedly fired his FBI chief, the potential fallout of which could delay Trump's pro-growth policy.

Gold prices rose by the most in one month, while the dollar fell for the second straight day.

Soft retail sales and monthly inflation data also affected the dollar, raising questions about whether the Federal Reserve could maintain its hawkish outlook for interest rates this year.

Federal funds futures implied a 49 percent chance of two more rate hikes this year, compared with 54 percent shortly before the release of the data, CME Group's FedWatch tool showed.

Banks, which typically benefit from higher interest rates, were the biggest drags on all three major indexes. The S&P 500 financial sector fell 0.7 percent, while industrials were off 0.8 percent.

Wall Street has been trading in a tight range in the past two weeks, with the S&P 500 not moving more than 0.4 percent in either direction and VIX, the fear gauge, hovering near two-decade lows.

"It is notable that no matter what happens on the news, that might have otherwise resulted in some fear factor, has not really affected the market," said Thomas Martin, senior portfolio manager at Globalt Investments.

"I think complacency is a big part of that."

At 12:31 p.m. ET (1631 GMT), the Dow Jones Industrial Average was down 34.15 points, or 0.16 percent, at 20,885.27, the S&P 500 was down 4.96 points, or 0.20 percent, at 2,389.48 and the Nasdaq Composite was up 2.42 points, or 0.04 percent, at 6,118.38.

Retail stocks were under pressure yet again after J.C. Penney reported lower-than-expected comparable store sales, sending its shares down nearly 10 percent.

GE was the top percentage loser on the Dow, down 2.7 percent after Deutsche Bank downgraded its shares to "sell" from "hold".

Declining issues outnumbered advancers on the NYSE by 1,563 to 1,254. On the Nasdaq, 1,581 issues fell and 1,159 advanced.

The S&P 500 index showed 26 52-week highs and nine lows, while the Nasdaq recorded 70 highs and 52 lows. (Reporting by Yashaswini Swamynathan in Bengaluru; Editing by Anil D'Silva)