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Written by: Staff

NEW YORK, June 6 (Reuters) The dollar jumped to session highs on Tuesday after a Wall Street Journal report that a Federal Reserve policy-maker said it was safer to err on the side of ''going a little too far'' in fighting inflation.

The Journal quoted St. Louis Federal Reserve President William Poole in its online edition as saying that a slowing economy on its own may not reduce inflationary pressures. That bolstered expectations that the Fed will extend its campaign of 16 straight rate rises at its next meeting on June 28-29.

The comments echoed those of Fed Chairman Ben Bernanke, who triggered a rebound in the dollar on Monday after he said the Fed needed to be vigilant to make sure inflation stays under control.

''This is a carry-on from Bernanke yesterday, and it all suggests the Fed wants to err on the side of hawkishness when it comes to rates,'' said Grant Wilson, vice president at Mellon Bank in Pittsburgh. ''People are putting bets back on the table for more rate hikes in June and maybe August too.'' Fed funds futures were pricing in a roughly 80 percent chance that the central bank will raise rates by another quarter percentage point to 5.25 percent at the June meeting. That compared with around 50 percent on Friday.

The dollar jumped 0.5 percent against the yen to 112.80 yen, and earlier touched a session high of 112.90 yen.

The euro was down 0.5 percent at $1.2840 as of early morning in New York, after falling to a session low of $1.2830 shortly after Poole's comments were released.

The euro had hit a one-year high of around $1.2980 on Monday just ahead of Bernanke's comments, supported by expectations that the European Central Bank will raise interest rates by as much as half a percentage point on Thursday.

Most analysts expect the ECB to lift rates by 25 basis points to 2.75 percent at the Thursday policy meeting and to signal more credit tightening is likely in store.

The comments by Bernanke and Poole have helped the dollar recover from a sell-off triggered by a surprisingly weak U.S. jobs report on Friday that suggested to some market players the Fed may be wary of pushing rates much higher.


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