* Yen touches 161.97 per dollar, weakest level since 1986

* Dollar index slips 0.28% to 101.08 but stays near 13-month

high

* Economists expect Thursday's US jobs report to show

110,000 jobs added and 4.3% unemployment

(Updated in New York afternoon time)

By Karen Brettell and Amanda Cooper

NEW YORK, June 29 (Reuters) - The dollar dropped on Monday

but remained near a 13-month high, supported by optimism over

U.S. economic growth, the prospect of Federal Reserve interest

rate hikes and a continuing AI-driven boom in U.S. equity

markets that has been drawing in capital at a rapid pace.

The Japanese yen also weakened to its lowest levels against

the U.S. currency since 1986.

A more hawkish turn at the Fed's June meeting under new Fed

Chair Kevin Warsh has led traders to increase bets on rate hikes

this year, as policymakers battle to bring down inflation that

is running well above their 2% annual target. Fed funds futures

traders are pricing in a 64% chance of a rate hike by September.

On the economic front, this week's main U.S. focus will be

Thursday's jobs report for June. Three consecutive months of

stronger-than-expected payroll gains have supported the Fed's

hawkish shift. A turn in the labor market, however, could prompt

a more dovish rethink of the monetary path.

"The labor market appears to have accelerated," said Marc

Chandler, chief market strategist at Bannockburn Global Forex.

"The concerns that the doves had pointed to about labor markets

slowing down seem to have passed."

The data is expected to show that employers added 110,000

jobs last month, while the unemployment rate held steady at

4.3%, according to the median estimate of economists polled by

Reuters.

Meanwhile, the U.S. Supreme Court refused on Monday to let

Donald Trump fire Fed Governor Lisa Cook. Trump responded that

his administration would take action immediately to ensure Cook

will not be making decisions concerning the welfare of the U.S.

Traders are also focused on progress to end the U.S.-Israeli

war with Iran.

Iranian and U.S. technical teams working on the implementation

of an interim peace deal are expected to meet in Doha in the

coming days, a source told Reuters on Monday, after tit-for-tat

weekend strikes threatened to derail the fragile accord.

The dollar index, which tracks the performance of the

U.S. currency against six others, dipped 0.28% to 101.08. The

index is up 2.17% this month.

"That is quite significant because, since April of last

year, there's been so much discussion about the structural

decline in the value of the dollar," Rabobank chief FX

strategist Jane Foley said. "But I think, even if you vehemently

believe that, you've got to admit that there is space for a

cyclical uptrend."

Weekly figures from the U.S. market regulator showed

investors held their largest bullish position in the dollar

relative to other major currencies since 2019, worth some $36.4

billion, according to LSEG data.

The euro gained 0.39% to $1.1427 after reaching a

13-month low against the dollar last week. It has lost 2% this

month.

The European Central Bank's annual forum starts on Monday,

opened by President Christine Lagarde and followed by a key

policy panel on Wednesday that features Warsh, whose comments

will come under close scrutiny from investors seeking more

insight into the new Fed chief's thinking on the outlook for

rates.

The yen touched 161.97, its weakest level since

1986.

"The Bank of Japan's long-awaited 25bp rate hike to 1.00%

has done little to offset the still-wide interest rate

differential with the United States, especially after the

Federal Reserve maintained a hawkish stance and signaled rates

are likely to remain elevated for longer," analysts at LMAX

Group said in a report.

Sterling strengthened 0.42% to $1.3256, having

touched its lowest in seven months last week.

Andy Burnham, Britain's prime minister-in-waiting, vowed on

Monday to deliver radical change to the nation's politics by

handing more power to its regions and by encouraging

collaboration over argument in a 10-year mission to spur "good"

growth.

Investors are keen to see his choicefor finance minister,

which could prove crucial to the outlook for both the pound and

the gilt market. Burnham said any economic plans would be

"backed by discipline" and abide by current fiscal rules.