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TOKYO, Aug 1 (Reuters) The dollar steadied against the yen on Tuesday but stayed in sight of a three-week low as expectations run high that the Federal Reserve will take a break next week from its two-year campaign of raising interest rates.

The US currency has slumped since softer-than-expected growth data at the end of last week caused expectations to recede for a rate rise by the Fed at its policy meeting on Aug. 8.

''The dollar looks heavy overall,'' said Masafumi Yamamoto, a currency strategist for Nikko Citigroup.

US rate futures show the market sees a roughly 30 per cent chance of the Fed raising rates by another 25 basis points to 5.5 per cent next week.

Some of the market's focus has turned to what US Treasury Secretary Henry Paulson has to say about China and the yuan when he speaks to cable network CNBC and before the Columbia Business School later in the session.

''Since interest rates are providing less support for the dollar ... it is showing more sensitivity to topics other than interest rates,'' Yamamoto said.

Two prominent US senators stepped up pressure on Beijing last week to allow the yuan to appreciate faster, just as speculation has risen that China is tolerating more currency strength to cool the economy's red-hot pace of growth.

The yuan rose to 7.9650 against the dollar on Monday, the highest level since Beijing revalued its currency in July 2005.

The yen is often traded as a proxy for the tightly managed yuan.

''What he says about China could further dampen market sentiment,'' said Takao Hattori, a senior investment strategist at Mitsubishi UFJ Securities.

As of 0500 GMT, the dollar was little changed at 114.70 yen It fell as far as 114.19 yen on Monday on electronic trading platform EBS, the lowest since July 12.

The euro eased to $1.2733 from $1.2765 in late U.S. trade. It fell to around 146.08 yen from 146.36 yen.

The euro has been supported by forecasts that the European Central Bank will raise rates by 25 basis points to 3 percent at its meeting on Thursday, but it was running into some profit-taking, said a trader at a major Japanese bank.

EYES ON PCE, ISM The dollar could also take a cue from the core PCE price index and the Institute for Supply Management's manufacturing index, both of which are due on Tuesday.

But with July nonfarm payrolls data looming large on Friday, the impact of Tuesday's data could turn out to be relatively limited, said Nikko Citigroup's Yamamoto.

Traders said the dollar may be supported above 114 yen due to importer buying and players looking to book profits on the yen, but the U.S. currency was seen struggling to rise above 115 yen with receding expectations for the Fed to raise rates next week.

Comments on the U.S. rate outlook by Fed officials gave the dollar little cheer on Monday, while a solid Chicago PMI report did little to change expectations that the Fed would stand pat.

St. Louis Fed President William Poole said he feels evenly split about the need for an 18th consecutive rate rise at next week's meeting. Poole is not a voting member of the policy-making committee.

San Francisco Fed President Janet Yellen, who is a voting member, suggested the current federal funds rate of 5.25 percent was ''in the vicinity'' of the right level, which many interpreted as a signal the central bank may not bump up rates.

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