The dollar hit two-week highs against the yen, euro and Swiss franc in Europe last night as investors in US assets absorbed the idea of a near-term tightening by the US Federal Reserve, analysts said.

The dollar has reversed a weakening trend which had been fuelled by expectations of a US rate rise this month, a move which markets feared would prompt foreign investors to divest US stocks and bonds. But a rate increase was no longer seen as necessarily negative for the dollar, analysts said.