FOREX-Dollar hits 3-1/2 month high vs yen on rate view

* Dollar strikes 3-1/2 month high versus yen

* Hawkish talk from Fed officials support dollar

* Yen pressured by returning risk appetite

(Changes dateline, byline, updates prices, adds quotes)

By Simon Falush

LONDON June 11 (Reuters) - The dollar struck a 3-1/2-month high against the yen on Wednesday after more tough talk from Federal Reserve officials on inflation firmed expectations of U.S. interest rate rises this year.

Dallas Fed President Richard Fisher said on Tuesday the U.S. central bank would not allow inflation expectations to rise unchecked, echoing comments made by Fed Chairman Ben Bernanke a day earlier. [ID:nN10365737]

Bernanke said the risk the U.S. economy has entered a substantial downturn has diminished over the past month, sparking the interest rate futures market to price in as much as 75 basis points of rate hikes by the end of the year FEDWATCH.

"Fed hawkishness has triggered a rebound in the dollar and Bernanke's comments that the U.S. economy is not faring as badly as was thought has improved risk appetite which is supporting the yen," said Adam Myers, markets strategist at Credit Suisse.

However Myers cited the downgrade last week of the bond insurance arms of MBIA Inc (MBI.N) and Ambac Financial Group (ABK.N) as evidence that problems in the U.S. economy are far from over [ID:nN05590179].

"The underlying evidence is not supporting (Bernanke's) case (on the economy), I think the market is pricing in too many rate hikes, and the dollar rally hasn't got anything to back it up."

Strong warnings about inflation risks from Fed officials came alongside an unexpected barrage of remarks from Treasury officials, who have said they are keeping an eye on the dollar and keeping options open for dollar-buying intervention to stem its slide.

By 0800 GMT the dollar was steady at 107.51 yen, having climbed as high as 107.76 yen on Reuters data, the highest since late February.

The euro climbed 0.3 percent to 166.68 yen EURJPY=, pushing up near a seven-month high of 167.15 yen hit last week.

The euro has been supported as European Central Bank officials have signalled a rate increase could come as soon as next month to limit the inflationary impact on the economy from soaring oil prices.