(Updated at 10:00 EDT (1400 GMT))

By Karen Brettell

NEW YORK, March 25 (Reuters) - The yen strengthened on

Monday after Japan's top currency diplomat warned against

speculators trying to weaken the currency, while China's yuan

gained on suspected selling of dollars by state-owned banks.

That helped to send the U.S. dollar lower against a basket

of currencies, after it reached a one-month high on Friday.

Masato Kanda, Japan's vice finance minister for

international affairs, said that weakness in the Japanese

currency did not reflect fundamentals, in the latest warning

about the currency's "big slide" against the dollar.

"He's clearly putting traders on alert for signs of

intervention," said Karl Schamotta, chief market strategist at

Corpay in Toronto.

The dollar was last down 0.11% on the day at 151.26 Japanese

yen, after hitting a four-month high of 151.86 on

Friday. It is within striking distance of a 32-year low of

151.94 per dollar hit in Oct. 2022.

Traders are watching the level around 152 for signs of

possible intervention, although Schamotta noted that the

government may not step in unless volatility also picks up.

"Implied volatility does continue to grind lower across most

major currencies so this is a supportive environment for the

carry trade - we should continue to see speculators borrow in

yen and other low yielders, and invest in the emerging market

high yielders," he said, adding "that could continue to put

downward pressure on the yen."

The Japanese currency has dropped despite the Bank of Japan

hiking interest rates out of negative territory last week.

China's yuan gained 0.37% in the offshore market

after dropping to a four-month low on Friday, propped up by

suspected selling of dollars by state-owned banks and a strong

official guidance set by the country's central bank.

The Chinese currency has been pressured by growing market

expectations of further monetary easing to prop up the world's

second-largest economy.

The dollar index was last down 0.23% at 104.19, after

hitting 104.49 on Friday, the highest since Feb. 16.

Federal Reserve Chair Jerome Powell said last week that the

U.S. central bank remains on track for rate cuts this year,

despite stickier than expected inflation in January and

February.

Some Fed officials including Atlanta Fed President Raphael

Bostic, however, have expressed concern about persistent

inflation and stronger-than-anticipated economic data. Bostic

said on Friday that he now expects just a single quarter-point

interest rate cut this year instead of the two he had projected.

The personal consumption expenditure (PCE) price index for

February due on Friday is the next major release for further

clues on Fed policy. The data will come as other markets

including stocks and bonds are closed for the Good Friday

holiday, which may reduce foreign exchange trading volumes.

The euro was last up 0.27% at $1.0835. Sterling

rose 0.36% to $1.2643.

Bets for a June rate cut by the European Central Bank

and the Bank of England (BoE) have

risen substantially after the Swiss National Bank became the

first major central bank to lower borrowing costs last week and

BoE Governor Andrew Bailey told the Financial Times that rate

cuts "were in play" this year.

Elsewhere, the Australian dollar rose 0.40% to

$0.6540.

Bitcoin climbed 6.9% to $67,923. It has fallen from a

record high of $73,803.25 on March 14.