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LONDON, Mar 6 (Reuters) The yen hit one-week lows versus the dollar and euro on Monday on growing expectations interest rates would stay near zero even after an end, perhaps as early as this week, to the Bank of Japan's ultra-easy monetary policy.

Market players grew cautious as political opposition to the end of ''quantitative easing'' intensified, underscoring the view that the central bank is unlikely to start raising interest rates from current near-zero levels until later in the year.

Analysts said interest rates spreads between the yen and the dollar or euro were unlikely to move dramatically in favour of the Japanese currency any time soon. Such spreads have been a major driver of the foreign exchange market over recent months.

''The market is now beginning to look beyond the potential first step in terms of a shift from quantitative easing to interest rate targeting,'' said Derek Halpenny, currency economist at Bank of Tokyo Mitsubishi.

''Given the rhetoric we've seen from the government today, the pressure, beyond moving away from quantitative easing will be very, very much on the BOJ to maintain a zero interest rate structure,'' Halpenny added.

Japanese Prime Minister Junichiro Koizumi urged the BOJ on Monday to be prudent about its policy making, in order not to spoil a hard-won economic recovery.

Vice Finance Minister Koichi Hosokawa, in a tacit warning against an expected near-term policy change, said he thought the central bank was well aware of the importance of overcoming deflation.

The dollar rose to a one-week high of 117.32 yen after hitting a one-month low of around 115.45 last week. By 1240 GMT, the dollar was changing hands at 117.26 yen, up 0.7 percent on the day.

The euro was up 0.6 percent at 140.96 yen, while the Australian dollar hit a one-week high of 87.31 yen.

The yen was also pressured by potential investment flows out of the Japanese currency, some analysts said.

Vodafone Group Plc is in talks to sell a controlling stake in its struggling Japanese unit to Softbank.

EURO SUPPORT The euro drew support as investors have warmed to the view that euro zone interest rates might rise beyond 3 percent.

The European Central Bank raised interest rates by 25 basis points to 2.5 percent last week and the bank's President Jean-Claude Trichet made hawkish comments.

Trichet said on Monday the monetary policy environment remained accommodative, adding that long-term interest rates were at historic lows.

The euro traded down slightly against the dollar at $1.2017.

The Swiss franc hit a one-month high against the dollar at 1.2895 and a one-week high versus the euro ahead of an expected 25 basis point interest rate increase by the Swiss National Bank on Thursday.

Some analysts said investors were cautious about buying the dollar ahead of a meeting of the United Nations' atomic watchdog later in the day to discuss Iran's nuclear ambitions.

The International Atomic Energy Agency is set to move the case to the U.N. Security Council, opening the way to possible U.N. action over worries Tehran wants to build atomic bombs.

About half of the market participants in a Reuters poll on Friday said they expect Japan's central bank to end the ultra-easy monetary of flooding the banking system with excess funds at this week's meeting.

Expectations increased after Japanese consumer prices rose 0.5 percent in February from a year earlier, the third straight monthly rise after declines in most of the previous seven years.

''Even if they don't change at this week's meeting the delay is only one month. It will take three months to withdraw excess liquidity before they can target zero interest rates. So the policy shift might not have a material impact,'' said Adam Cole, currency strategist at Royal Bank of Canada.

REUTERS SD HT2030