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TOKYO, Feb 27 (Reuters) The yen rallied to a one-month high against the dollar and six-week peak versus the euro on Monday, gaining on hopes the Bank of Japan will soon scrap its ultra-loose monetary policy and eventually raise interest rates.

But the dollar jumped to a two-month high against the euro and a three-month peak versus the Swiss franc, strengthening on hopes for more steady Federal Reserve interest rate increases.

With investors growing convinced that the BOJ will raise overnight rates later this year for the first time since August 2000 and the Fed could lift rates even higher than had been expected, European currencies suffered the most.

Even though the European Central Bank is widely expected to bump up rates at a meeting on Thursday, taking them to 2.5 percent, analysts do not see a run of credit tightening ahead.

Market players are looking to U.S. data this week, including monthly manufacturing figures and the Fed's favoured inflation gauge, for any upside surprises that could stir expectations for the Fed to push up its funds rate beyond 5 percent.

''If the U.S. indicators turn out stronger than expected this week, the market will start pricing in a fed funds rate of more than 5 percent. That should be supportive for the dollar,'' said Tohru Sasaki, chief forex strategist at JPMorgan Chase Bank in Tokyo.

The Fed has raised short-term rates 14 straight times to 4.5 percent and is widely expected to bump them up to 5 percent by mid-year on signs of solid growth.

In a speech late on Friday, Fed Chairman Ben Bernanke did not touch on the economic or policy outlook but said the central bank needed to keep inflation low.

Helping to boost the dollar against the safe-haven Swiss franc, officials said Iran and Russia had settled on a ''basic'' agreement on jointly enriching uranium, possibly helping defuse a crisis between Tehran and the West over its nuclear ambitions.

The Swiss franc had gained on Friday after a foiled suicide attack on oil facilities in Saudi Arabia.

By 0140 GMT, the euro hovered around $1.1845 after falling as low as $1.1826, according to data from electronic trading platform, its weakest since Jan. 3.

The euro's drop was sparked early in the session on the break of automatic sell orders near $1.1850.

The U.S. currency changed hands near the three-month high of $1.3228 Swiss francs according to Reuters data.

The New Zealand dollar tumbled back near 17-month lows against its U.S. counterpart, trading near 65.80 U.S. cents after data showed the country's trade deficit in January swelled to NZ$935 million, more than twice forecasts.

BOJ HELPS YEN TAKE FLIGHT The euro tumbled to six-week lows at 137.55 yen on EBS before recovering to around 137.80 yen. Traders described panic selling of the euro for yen.

The dollar slid to 116.18 yen on EBS, the weakest since Jan.

27, before bouncing back to around 116.25 yen.

Mounting expectations for the BOJ to end its extreme quantitative easing policy and raise overnight rates later in the year prompted two-year Japanese government bond yields to hit a five-year high.

Speculation has swirled that an upbeat consumer price index report on Friday could prompt the BOJ to end quantitative easing as soon as a meeting late next week. Most analysts expect a policy shift to come at the central bank's late April gathering.

The benchmark contract for euroyen money market futures fell to the lowest since August 2000, the same month as when the BOJ last raised interest rates to 0.25 percent.

Quantitative easing has kept overnight rates pinned at 0.001 percent usually.

Reuters SK VP0735