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TOKYO, May 9 (Reuters) The yen hit a six-week high against the euro and crept back towards an eight-month peak versus the dollar on Tuesday after a media report stoked expectations the Bank of Japan will raise interest rates as soon as July.

Jiji Press, without citing sources, said the BOJ would upgrade its description of the economy, replacing the word ''recovery'' with ''expansion'' in its upcoming monthly assessment for the first time since 1991.

Such a change would suggest the central bank was closer to boosting rates for the first time in six years.

''The market is clearly favouring the yen at the moment,'' said Kota Kimura, forex manager at Shinkin Central Bank. ''It's not so easy to reverse that.'' The dollar was also softer against the yen due to caution ahead of a Federal Reserve meeting on Wednesday at which the central bank is widely expected to lift its funds rates for the 16th straight time to 5 percent from the current 4.75 percent.

Traders are uncertain about the Fed's action beyond this month and are eager to see if the central bank hints at a pause in the current tightening cycle in its post-meeting statement.

Growing speculation that the Fed has nearly finished the two-year tightening campaign has helped to push the dollar to one-year lows against major European currencies.

In early trade, the euro was at 141.40 yen after falling as low as around 141.25 yen, shedding about 0.4 percent from late New York levels on Monday.

The yen's strength versus the euro helped to lift the Japanese currency against the dollar, which gave up 0.3 percent to 111.35 yen. That was within striking distance of an eight-month low of 110.99 yen hit on Monday.

The euro eased slightly to $1.2700. It climbed to a one-year peak of $1.2788 the previous day.

Traders said the market was also focusing on the U.S.

Treasury's report on currency practices of trading partners due on Wednesday, with expectations in some quarters that the government might name China as a currency manipulator.

Analysts said such an action by the United States could trigger dollar selling against the yen -- seen as a proxy for China's yuan.

Timothy Adams, the U.S. Treasury's undersecretary for international affairs, said last week that it was appropriate Japan had not intervened to keep the yen from strengthening since March 2004 but ''we should all refrain'' from commenting on exchange rates.

The remarks were seen by many in the market as a signal that Washington wants the dollar to weaken against the currencies of countries with hefty trade surpluses, especially in Asia, as a way to help fix global imbalances.

Japanese Finance Minister Sadakazu Tanigaki said on Tuesday that excessive movements in the foreign exchange market were undesirable but declined to comment on Japan's forex intervention policy.

REUTERS PDS VP0730