* Dollar index near 2-month high after Yellen fans rate hike hopes

* Yen gains slightly after Japan output data

By Hideyuki Sano

TOKYO, May 31 (Reuters) - The dollar held firm on Tuesday, staying near its highest level in two months against a basket of currencies thanks to growing expectation of an imminent U.S. interest rate hike, while the yen bounced after Japan's solid industrial output data.

The dollar's index against a basket of six major currencies rose to as high as 95.968 on Monday, having jumped 4.4 percent from its 15-1/2-month low hit earlier this month at 91.919. It last stood at 95.662.

The latest spark for dollar bulls came from Federal Reserve Chair Janet Yellen, who on Friday said a rate increase in the coming months "would be appropriate," if the economy and labour market continued to improve.

The euro slipped to as low as $1.1097, its lowest since mid-March on Monday, though it has managed to bounce back from that level, which straddled its 200-day moving average. It last stood at $1.1148.

On the month, the common currency was down 2.7 percent, on course to post its first monthly loss in four months.

The dollar also fetched a one-month high of 111.455 yen on Monday.

But in early Asian trade on Tuesday the dollar slipped to 110.80 yen after Japan reported better-than-expected industrial production data.

The data tempered fledgling expectations that the Bank of Japan could expand its stimulus as soon as in June after Japanese prime minister Shinzo Abe pitched a plan on Monday to delay next year's sales tax hike to fellow ruling party members.

Although some of them expressed concerns that such a move would signal a failure of his policies to reflate the economy out of stagnation, Abe is widely expected to have his way.

"The dollar could rise above 112 yen if the Fed raise rates next month. But I doubt it could reach those levels on Japanese factors," said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank.

Sera also believes that some in the market are misguided in expecting the BOJ to take easing steps just because the government is planning a stimulus.

"The government is back-pedalling on fiscal reforms, which could make it difficult for the BOJ to move," she added.

For now, a clear break of the 111.23 - a major resistance from the cloud top on Ichimoku charts - could brighten its technical outlook and could pave the way for a retest of its April 25 peak of 111.90 yen.

Against the euro, the yen also weakened to 123.69 yen , its lowest in a week and a half.

The British pound was little changed at $1.4650, off a three-week high of $1.4738 hit last week.