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TOKYO, Mar 7 (Reuters) The dollar rose against the yen for a third straight day on Tuesday, extending gains as more investors come round to the view the Bank of Japan won't raise interest rates anytime soon.

The U.S. currency drew additional support after St. Louis Federal Reserve President William Poole said late on Monday that the Fed might have to raise U.S. rates further if economic growth is consistently strong.

With the dollar's rate advantage expected to increase even more by mid-year and Japanese rates not seen rising from near zero until year-end, many investors concluded the dollar probably fell too far too fast last week.

Traders said the market was also spooked by mounting calls from the government, including Prime Minister Junichiro Koizumi, for the BOJ to think twice in its policy-making so as not to spoil a hard-won economic recovery.

The BOJ is seen ending its five-year old policy of flooding the banking system with excess funds as early as a policy meeting that ends on Thursday as Japanese data shows the economy recovering and consumer prices on the rise.

Koizumi, in a parliament session on Monday, urged the BOJ to exercise caution but added that he had no plans to make any specific requests to the central bank.

''Koizumi just wanted to warn the BOJ,'' said the chief trader at a foreign investment bank in Tokyo. ''He was quite sarcastic.'' Finance Minister Sadakazu Tanigaki sidestepped a question at a news conference on Tuesday of whether the government would consider asking for a delay in the central bank's policy decision.

The dollar had hit a one-month low against the yen last week on market exuberance over an imminent end to the BOJ's super-easy monetary policy.

In early Asian trade, the dollar edged up to 117.70 yen after rising nearly 1 percent in the previous session.

Traders said any gains in the dollar should be capped around 118 yen, where Japanese exporters are lined up to sell the U.S.

currency.

The euro slipped to $1.1985 from around $1.2015 in late U.S.

trade on Monday, when it had briefly extended last week's 2 percent gains to hit a fresh one-month high of $1.2093.

The dollar had garnered additional support from economic data on Monday that showed a smaller-than-expected decline in February factory orders and upward revisions to January's durable goods orders.

The single European currency was down 0.2 percent at 141.05 yen after rising a full yen in the previous session.

Apart from the BOJ, other central banks setting policy this week are the Bank of Canada, the Bank of England and the Reserve Banks of Australia and New Zealand. Only the Bank of Canada is expected to raise rates, with the others standing pat.

REUTERS VJ RAI0740