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TOKYO, June 14 (Reuters) The dollar hovered near seven-week highs against the euro and the yen on Wednesday as risk-wary investors bought the U.S. currency amid turbulence in financial markets.

Expectations that the Federal Reserve will boost its funds rate for the 17th straight time to 5.25 percent later this month also made investors comfortable with seeking refuge in the dollar, traders said.

''The market continues to see movement linked to risk aversion,'' said Kota Kimura, forex manager at Shinkin Central Bank. ''Unless some fresh and strong incentives come out, money is likely to keep flowing back to dollar assets.'' In early Tokyo trade, the dollar edged down to 115.20 yen, still within striking distance of a seven-week high of 115.45 yen hit in the previous session on electronic trading platform EBS.

The euro was at $1.2545, near a seven-week low of $1.2530 struck on Tuesday. Against the yen, the euro dipped to 114.50 yen.

Market players were mindful of Bank of Japan Governor Toshihiko Fukui's disclosure on Tuesday that he invested in a fund set up by Yoshiaki Murakami, a top fund manager who was arrested last week for insider trading, before he became head of the central bank.

That prompted an opposition lawmaker to demand Fukui's resignation, though Prime Minister Junichiro Koizumi said Fukui had done nothing wrong and the government's top spokesman said it had no plans to replace him.

Traders said market participants were cautious about taking aggressive positions ahead of the U.S. consumer price index, due at 1230 GMT, which could reinforce expectations for a rate increase at the Fed's next policy meeting on June 28-29.

A string of top Fed officials including Chairman Ben Bernanke have made clear in past weeks their concerns about inflation risks.

Economists expect a rise of 0.4 percent in the CPI from a month earlier. It climbed 0.6 percent in April.

Excluding food and energy items, CPI was seen up 0.2 percent compared with a 0.3 percent rise the previous month.

A higher-than-expected core U.S. producer inflation reading for May prompted further unwinding of short dollar positions on Tuesday, traders said.

REUTERS DH RAI0625