SINGAPORE, Jan 29 The dollar hit a four-year high to the yen on Monday as investors bet t

SINGAPORE, Jan 29 (Reuters) The dollar hit a four-year high to the yen on Monday as investors bet the Federal Reserve would not cut interest rates this year, and oil rose further due to colder weather in the United States and tensions over Iran.

Solid economic data from the United States last week reinforced expectations the Fed would see no need to cut borrowing costs in the coming months, while soft inflation figures in Japan were seen boosting the chances that rate rises there would be delayed.

''Strong U.S. data could push the dollar higher this week,'' said Nobuo Ibaraki, a forex manager at Nomura Trust and Banking, adding that few in the market were expecting a rate cut this year.

''Meanwhile, yen weakness is going to continue.'' Asian share markets mostly treaded water, with investors cautious at the start of a heavy week for corporate earnings in the region and ahead of a Federal Reserve meeting that ends on Wednesday.

Japanese government bond futures edged down from a one-month high, pressured by rising yields overseas, and gold rebounded after falling in New York on a firmer dollar.

Shares in Japan's largest banking group, Mitsubishi UFJ Financial Group fell 1.3 percent on concerns one of its lending units may be punished by a financial watchdog for loaning money to an individual with criminal connections.

''Right now there is no clear direction for the market.

Investors are buying and selling stocks based on individual factors,'' said Masayoshi Okamoto, head of dealing at Jujiya Securities.

''In the case of Mitsubishi UFJ ... it is certain that this is bad news for the company, but we don't know how bad the situation is yet.'' Shares in Japanese steelmaker JFE Holdings rose 2.8 percent and South Korean rival Hyundai Steel Co.

gained 3 percent after a Japanese business daily said they were in talks on an alliance. Hyundai said the report was premature.

In Sydney, contractor Leighton Holdings rose 3.9 percent on speculation Macquarie Bank Ltd. could buy its parent, Germany's Hochtief , and take the Australian unit private.

LOW-YIELDING YEN The dollar bought around 121.78 yen at 0220 GMT, just below a high of 121.83 yen hit on electronic trading platform EBS, the strongest since March 2003.

The euro was around $1.2903 , while against the yen the single currency traded about 157.10 yen , not far from a record high of 158.62 yen touched last week.

Interest rate differentials have dominated currency markets in recent weeks, with the low-yielding yen hammered against higher yielding currencies on the view Japan's rates will remain substantially lower than other major economies for some time.

The Fed is widely expected to hold U.S. rates steady at 5.25 percent at its policy meeting this week, while a Reuters poll on Friday showed market players tilting towards the view the Bank of Japan will not lift rates from 0.25 percent next month.

Tokyo's Nikkei <.n225> rose 0.2 percent in the morning session, while MSCI's broadest index of shares elsewhere in Asia <.msciapj> was flat at 0220 GMT.

U.S. stock closed little changed on Friday, with the Dow Jones industrial average <.dji> down 0.1 percent and the Nasdaq Composite Index <.ixic> flat.

Stock benchmarks in Australia <.axjo>, South Korea <.ks11> and Taiwan <.twii> all fell around 0.1 percent. Hong Kong's Hang Seng <.hsi> rose 0.3 percent and Singapore's Straits Times <.sti> gained 0.7 percent.

U.S. oil futures climbed towards $56 a barrel, extending Friday's 2 percent gain, which was led by colder weather in the U.S.

Northeast, the world's top heating oil market.

Prices were also supported by conflicting signals from the world's fourth-largest producer Iran over its nuclear programme, heightening geopolitical tensions in the Middle East.

''Oil prices are likely to rise further because we are seeing stronger demand outlook for heating oil products in the U.S. because of lower-than-usual temperatures, which are forecast to continue next week,'' said Dariusz Kowalczyk, chief investment strategist at SJ Seymour Group.

''News out of Iran over the weekend about progress in nuclear research has also spooked the market a little.'' NYMEX crude for March delivery rose 40 cents to $55.82 a barrel.

Gold , often bought as a hedge against energy costs-driven inflation, edged up to around $646.50 an ounce.

Gold retreated from 5-1/2-month highs late last week as a higher dollar made it more expensive for holders of other currencies.

The benchmark 10-year Japanese government bond yield rose 2.5 basis points to 1.705 percent .

REUTERS AKJ RK0914