* Euro approaches 2-mth high vs dollar on ECB rate view
* Dollar struggles broadly, index hits lowest since late Nov
* FX market shows limited reaction to Egypt turmoil
(Adds comment, updates throughout; previous SINGAPORE)
By Naomi Tajitsu
LONDON, Feb 1 (Reuters) - The euro approached a two-month high against a broadly weaker dollar on Tuesday, boosted by speculation that increasing inflation pressures will prompt a much faster rise in euro zone interest rates than U.S. ones.
The dollar tumbled across the board, hitting a 12-week low against a currency basket as investors say the Federal Reserve will lag far behind the European Central Bank, the Bank of England and other central banks in raising interest rates.
"Relative rate spreads are still favouring the euro to the dollar," said John Hydeskov, currency strategist at Danske.
"Pressure has intensified for the ECB to do something about inflation when it meets on Thursday. The ECB has hiked rates when inflation was previously at this level, so it's possible they could do it again."
Data on Monday showed a 2.4 percent year-on-year jump in euro zone inflation.
Investors expect ECB President Jean-Claude Trichet to keep his hawkish tone when the central bank holds a policy meeting on Thursday, as inflation hovers above the central bank's target of just below 2 percent for the second month.
Implied interest rate futures suggest a roughly 60 percent possibility the ECB will raise rates by 25 basis points in July, from the current record low of 1.0 percent.
Speculation in the past week that rates will rise has widened the two-year yield spread between euro zone and U.S. government bonds to around 80 basis points, its widest in two years.
In early European trade, the euro rose as high as around $1.3758, a whisper away from a two-month high of $1.3760 hit late last week, before pulling back to $1.3720, up 0.2 percent on the day.
Traders said selling by Asian sovereign names had pulled the euro away from its session high, adding the single currency was well supported as market concern over political unrest in Egypt abated somewhat.
The pair hovered near $1.3739, the 61.8 percent Fibonacci retracement of its November-January fall. Technical analysts said a sustained move above that level would open the way to $1.40.
The U.S. currency slipped to a four-week low around 81.77 yen, helping to push the dollar index, which tracks the U.S. currency's value against a basket of other currencies, as low as 77.413, its weakest since early November.
AUSSIE RALLIES
The Australian dollar rallied 0.7 percent to a session high of $1.0047 after the country's central bank ended its monthly policy meeting with a generally upbeat assessment of the domestic and global economy.
The RBA kept its key cash rate unchanged at 4.75 percent, saying the impact of flood damage in Queensland would be temporary and it was still very much focused on the medium-term outlook for solid growth..
"The market was positioned for a more dovish slant from the RBA, perhaps expecting the bank to cut flood-hit Queenslanders some slack," Citi said in a note.
Analysts expected offers to emerge ahead of $1.0050, which may cool the Australian currency's rally in the short term.
The Swedish crown rallied, knocking the euro to a 10-year low of 8.786 crowns, after an above-forecast Swedish purchasing managers' survey. (Additional reporting by Asia Forex Team)