* Dollar gains further vs yen, hits 2-week high
* Dealers say euro supported by corporate demand
* Traders cite large hedge fund bets on Swiss franc vs euro
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
By Patrick Graham
LONDON, March 2 Further signs that Federal
Reserve policymakers are swinging behind a March rise in U.S.
interest rates kept the dollar rising against the yen on
Thursday while it struggled to make more pace against a
Governor Lael Brainard, a renowned dove on the Fed's open
market committee, was the latest to say on Wednesday that an
improving global economy and a solid U.S. recovery mean it will
be "appropriate soon" for the Fed to raise rates.
That fuelled an almost half percent rise to a two-week high
of 114.31 yen and put the dollar in positive territory
for a third day running against the euro and its fifth
against the pound.
Yet the scale of the gains, given the huge swing in
expectations for a Fed hike - from 30 percent at the start of
the week to roughly 70 percent on Thursday - was still
relatively modest: the dollar index has gained just under 0.7
percent in that time.
"The fact that the dollar hasn't managed to rally to any
order of magnitude is of concern to dollar bulls," said Richard
Benson, co-head of portfolio management with currency fund
Millennium Global in London.
"The problem from here is that if you haven't been involved
for a period of time, are you going to bet against the euro when
its almost fully-priced for the Fed. The next two percent (move
higher for the dollar) may be very sticky."
The dollar index, which measures the greenback against a
basket of six major currencies, was less than 0.1 percent higher
on the day on Thursday at 101.84, down off a peak of
102.0 reached in Asian trading.
A widening of U.S.-Japan interest rate differentials helped
the dollar, the U.S. two-year yield hovering near a more than
seven-year high of 1.308 percent. The benchmark
10-year Treasury yield was also close to a two-week high, last
standing at 2.461 percent.
However, some analysts warned that the dollar could weaken
despite the widening interest rate differentials should stocks
"If the Fed goes ahead with a faster pace of rate hikes and
shrinks its balance sheet, it will weigh on stock prices," said
Minori Uchida, chief FX analyst at Bank of Tokyo Mitsubishi UFJ.
"Lower share prices and wider yield differentials would
result in a weaker dollar, just like in May 2013 when Fed's
Bernanke signalled tapering."
Speeches from Fed Chair Janet Yellen and Vice Chair Stanley
Fischer on Friday are now widely expected to be the final piece
of the puzzle, along with next week's non-farm payrolls.
Traders cite a steady drip of corporate demand for the euro,
but Millennium's Benson and a number of others point to the need
for a bigger move in yields of longer-dated U.S. Treasuries if
the greenback is to rise further.
"Whether the Fed's next hike is in March, May or June is
less important than whether they go twice or three times this
year, and that in turn is less important than what the market
prices as a terminal Fed Funds rate," said Societe Generale
strategist Kit Juckes.
"At the moment, the market isn't convinced that Fed Funds
will peak much above 2 percent. A move higher from there would
be more supportive for the dollar than any rethink about how
fast we get to 2 percent."
(Additional reporting by Yuzuha Oka in TOKYO Editing by Jeremy