* Dollar index highest since Jan. 11
* Hawkish Fed comments raise March rate hike expectations (Updates market action, changes dateline from LONDON)
By Karen Brettell
NEW YORK, March 2 (Reuters) - The dollar gained to seven week highs against a basket of currencies on Thursday, after hawkish comments by a Federal Reserve official late on Wednesday encouraged investors to expect a near-term interest rate hike.
Fed Governor Lael Brainard said an improving global economy and a solid U.S. recovery mean it will be “appropriate soon” for the Federal Reserve to raise rates, adding an important voice to the chorus of officials signaling rates may rise as soon as mid-March.
Those remarks come after New York Fed President William Dudley and San Francisco Fed President John Williams rattled investors on Tuesday with more aggressive than expected language about raising rates.
”We’ve had this great run of data in the U.S. and the expectation on a March rate move has gone up,” said Steven Englander, global head of foreign exchange strategy at Citigroup in New York.
Futures traders are now pricing in a 78 percent chance of a Fed hike in March, up from 66 percent on Wednesday and from 35 percent on Tuesday, according to the CME Group’s FedWatch Tool.
Fed Chair Janet Yellen and Vice Chair Stanley Fischer are both due to speak on Friday.
The dollar rose 0.38 percent against a basket of six major currencies to 102.17, its highest since Jan. 11.
The greenback was last up 0.64 percent against the Japanese yen at 114.43, the highest since Feb. 15 and gained 0.41 percent against the euro to $1.0503.
The dollar has strengthened even as many analysts see limited further gains for the currency due to worries about the impact of higher rates and a stronger dollar on global growth.
High yielding emerging market currencies including the South Korean won, South African rand and Brazilian real have also performed strongly this year despite the rise in Treasury yields.
Ten-year U.S. bond yields have failed to hold over 2.50 percent for any prolonged period despite weakening dramatically since Donald Trump won the U.S. election in November.
A sustained move higher, however, could weigh on emerging market currencies, said Citi’s Englander.
“If the numbers come in strong enough and the Fed comments come in strong enough to break the range, the question would be whether the optimism on emerging currencies would really be justified,” he said. (Editing by Bernadette Baum)