TOKYO, Feb 19 The dollar hit a six-week low against the Swiss franc on Monday after weak

TOKYO, Feb 19 (Reuters) The dollar hit a six-week low against the Swiss franc on Monday after weak U.S. housing data late last week further fuelled expectations that the Federal Reserve may start cutting interest rates later this year.

The dollar also stayed near a six-week low against the euro and a five-week trough versus the yen after a U.S. government report showed on Friday that the pace of home construction fell 14.3 percent in January, the sharpest drop since October.

But trade was subdued and investors remained hesitant to bet aggressively as markets in China, Hong Kong and Singapore were closed for Lunar New Year holidays. U.S. financial markets were also closed on Monday to mark the Presidents Day holiday.

The market's main focus was whether the Bank of Japan would raise the overnight call rate to 0.5 percent from the current 0.25 percent at its two-day policy meeting starting on Tuesday, with market opinion split on whether a move is in the offing.

''The dollar will probably be heavy against the yen until midweek on caution over a possible BOJ rate hike,'' Koji Fukaya, senior currency strategist at Deutsche Bank in Tokyo, said in a note to clients.

The yen rallied last week after strong GDP growth data in October-December boosted expectations for a February rate hike.

The dollar barely budged at 119.45 yen from late U.S. trading on Friday, when the U.S. currency hit a five-week low of 118.98 yen on electronic trading platform EBS.

The dollar fell 2 percent against the yen last week, its worst weekly slide in nine months, on an array of weak data and comments from Fed Chairman Ben Bernanke that inflation was starting to cool, boosting speculation that the U.S. central bank will have to trim rates from 5.25 percent later this year.

Fukaya said 118.30 yen or 117.40 yen may provide chart support for the dollar, marking 50 percent and 61.2 percent retracements respectively of the currency's rise to 122.20 yen in January from December's low at 114.40 yen.

The dollar was at 1.2342 Swiss francs after hitting a six-week low around 1.2315.

The euro was a touch firmer at $1.3149 within striking distance of a six-week high on EBS of $1.3173 hit on Thursday.

The single currency rose 0.2 percent versus the yen to 157.10 yen.

The New Zealand dollar pushed up above $0.70 to hit the highest levels in nearly four weeks as investors bet New Zealand's central bank would raise interest rates to 7.50 percent in March from the current 7.25 percent.

LOW-YIELDING YEN The yen OIS showed on Monday a roughly 60 percent chance of a rate hike this week, up from a low of 30-35 percent last week and indicating that markets were leaning towards a rate rise.

''A BOJ rate hike is likely to give the yen a boost, though the yen may soon start to drift lower,'' said Tohru Sasaki, chief foreign exchange strategist at JPMorgan Chase Bank in Tokyo.

Few market participants believe the yen's underlying weakness will change even if the BOJ lifts interest rates by 25 basis points this week, since it would still be the lowest-yielding currency among industrialised nations.

That means the yen will continue to suffer as market players use it as a cheap source of funds for purchasing higher-yielding assets in so-called carry trades.

The carry trade helped the euro surge almost 13 percent against the yen last year. It hit an all-time high of 159.00 yen last week.

According to a Reuters poll taken last week, economists expect the European Central Bank to raise rates to 3.75 percent from 3.50 percent next month and probably again by mid-year as data showed the euro zone economy powered to a six-year growth high in 2006.

REUTERS CS DS1305