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Written by: Staff

TOKYO, July 4 (Reuters) The euro stayed in sight of a one-month high against the dollar and a record peak versus the yen on Tuesday after data suggested the prospects for higher interest rates have lessened in the United States but risen in the euro zone.

The euro struck the highs in the previous session after a June euro zone manufacturing index showed its best reading in six years, while separate data showed U.S. factory activity in the same month grew at the slowest pace in 10 months.

The stronger-than-expected factory data for Europe supported expectations that the European Central Bank could accelerate the pace of rate hikes.

Meanwhile, the U.S. data suggested that the U.S. economy may be slowing down, feeding speculation that the Federal Reserve is about to pause its two-year campaign of raising interest rates.

The U.S. central bank followed up its 17th straight rate increase last week by saying slower growth could help contain inflationary pressures.

''The euro zone data confirmed that the ECB is on track to raise rates,'' said the chief trader at a European investment bank in Tokyo ''The U.S. figures were slow but not significantly slow, showing that the impact of the rate rises is gradually affecting the economy but not in drastic ways. That means the Fed's policy is working.'' Although the ECB is seen leaving rates on hold at its policy meeting this week, many in the market are betting on a rate rise in August following a bump up to 2.75 percent last month.

The yen's fall against the dollar and the euro was cushioned by growing expectations that the Bank of Japan will raise rates from zero at next week's Policy Board meeting.

In a Reuters survey conducted after an upbeat reading for the BOJ's tankan survey of corporate sentiment on Monday, 32 of 41 analysts and traders said they expected a July rate increase.

In early Tokyo trade, the euro was little changed at $1.2795 after rising as high as $1.2823 on Monday, its highest since June 7.

The single currency was at 146.90 yen, just off the all-time high of 147.05 yen struck on trading platform EBS in the previous session.

The dollar edged up to 114.75 yen.

Reuters DH VP0622

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