* Euro hits 5-month high vs dollar, then slips back
* Single currency eases from 11-mth high vs Yen
* ECB rate hike expectations may be fully priced (Recasts, updates prices; dateline previously LONDON)
NEW YORK, April 4 (Reuters) - The euro fell from 11-month highs against the yen on Monday and a five-month peak against the dollar, with expectations of an increase in euro zone interest rates already priced in by investors.
The European Central Bank at its policy meeting on Thursday
is expected to raise rates by 25 basis points from a record low
in reaction to rising inflationary pressures in the euro zone,
with two more 25 basis point hikes factored in by year-end.
Bids from Asian central banks and other investors are likely to offer solid support to the euro at $1.4190 against the dollar, with stops through to below $1.4150 also cited by traders.
Analysts said there were plenty of event risks this week, including a number of central bank rate decisions in the developed world and a slew of speakers from the U.S. Federal Reserve, that could see investors adopt a wait-and-see stance.
The Bank of Japan is likely to downgrade its economic assessment and keep policy ultra-loose on Wednesday, while comments from a senior Federal Reserve official on Friday highlighted divergence and uncertainty over the need to tighten monetary policy in the United States.
"It's difficult to sell the euro going into Thursday's ECB meeting," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. "But there is limited upside and we would need to hear surprisingly hawkish comment from ECB president Jean-Claude Trichet for a sustainable move higher in the euro."
The euro
Technical analysts also highlighted trendline resistance drawn from the euro's record high struck in July 2008 coming in around $1.4300.
"The move wider in EUR/USD rate differentials seems to have lost some of its impetus in the run-up to the ECB rate decision indicating that some euro positives are already priced in by the market," said Valentin Marinov, analyst at CitiFX in a note.
The euro briefly popped above 120 yen
One of the Federal Reserve's most powerful policymakers, William Dudley, president of the New York Federal Reserve Bank, on Friday went against an increasingly hawkish tone from some other Fed officials worried about inflation, saying he saw no need for the central bank to reverse course. [ID:nN01154414]
FED POLICY DIVERGENCE
Better-than-expected U.S. employment data on Friday, hinting at a stronger recovery and the possibility for higher U.S. rates, gave the greenback some support.
Against the yen, the dollar fell 0.1 percent to 83.98 yen
It rose above its 200-day moving average last week, in a sign that the downtrend against the yen may have run its course.
The pair will be sensitive to a host of Fed speakers who are due to speak later on Monday, including Fed chief Ben Bernanke. Atlanta Fed President Dennis Lockhart and Chicago Fed chief Charles Evans are also scheduled to speak.
Last week, hawkish comments from a number of Fed policymakers helped the dollar rebound on the yen, before it ran out of steam following dovish comments from Dudley.
Noting comments from St. Louis Fed chief James Bullard to the New York Fed's Dudley, Lena Komileva, head of G-10 currency strategy at Brown Brothers, said, "The policy flow of the past week has reflected a growing divergence in the degree of confidence surrounding the economy's outlook, which is not unusual for turning points in the Fed's cycle."
The yen hovered near recent lows on the crosses, particularly against higher yielding currencies like the Australian dollar.
The Aussie again traded to it highest since being freely
floated in 1983