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NEW YORK, Mar 27 (Reuters) The yen rose to a one-week high against the dollar on Monday as Japanese investors shifted funds back to Japan to meet an accounting deadline as the country's fiscal year ends Friday.

''The traditional view in the market is that Japanese investors repatriate assets ahead of fiscal year end in order to 'window dress' books and then allow the outflows to resume from April 1 onwards,'' a UBS research note said.

An increasingly data-sensitive dollar remained under pressure as investors looked to see what clues would emerge on the U.S. Federal Reserve's policy outlook after an expected interest rate rise at a two-day meeting that ends on Tuesday.

Early morning in New York, the dollar traded down 0.7 per cent against the yen at 116.61 yen, down sharply from an intraday 1-1/2 week high around 118.49 yen hit on Friday. The euro was down 0.8 per cent against the yen at 140.24 yen. Against the dollar, the euro was down 0.1 per cent at $1.2024.

One clue to the the Japanese fiscal year's bearing on the yen's strength was the absence of the customary yen-bearish impact of a widening of the yield spread between benchmark U.S. and Japanese bonds.

The 10-year Treasury note's yield spread over equivalent Japanese Government bonds (JGBs) has widened to about 298 basis points on Monday from about 295 basis points on Friday.

Because Japanese investors usually seek higher yields outside their domestic government bond market, that widening yield spread would normally support the dollar against the Japanese currency, but it hasn't had that effect on Monday, said Richard Franulovich, senior currency strategist with Westpac Banking Corporation in New York.

''The only thing that could explain why dollar/yen hasn't gone up is fiscal year end repatriation,'' Franulovich said.

On the Japanese stock market, the Nikkei average rose 0.54 per cent on Monday as firms with strong earnings prospects such as Honda Motor Co. gained on chances they will benefit from new money entering the market at the start of Japan's fiscal year in April.

EYES ON FEDe The Fed is widely expected to lift rates to 4.75 per cent from 4.5 per cent this week, in what would be a 15th increase in as many policy meetings, but investors are focusing more on what clues the central bank might give on its actions beyond that.

The end of the Fed's monetary tightening cycle would probably weigh on the dollar, which was boosted by rate hikes in 2005 as global investors were attracted by rising yields on dollar deposits.

The dollar has been vulnerable to any evidence suggesting the Fed is set to stop raising rates soon, especially as the European Central Bank has made clear its plans to keep increasing them and as the Bank of Japan moves closer to doing so before the year-end.

REUTERS SD BD2047