* USD lifted as Yellen says near-term hike "would be appropriate"

* Dollar index hits 2-month high, euro drops to 2-1/2-mth low

* Political developments in Japan also seen supporting dollar/yen

By Shinichi Saoshiro

TOKYO, May 30 (Reuters) - The dollar hit a one-month high against the yen early on Monday and stood tall against other peers after comments by Federal Reserve Chair Janet Yellen enhanced the prospect of a near-term U.S. interest rate hike.

The Fed chair said on Friday a rate increase in the coming months "would be appropriate," if the economy and labour market continued to improve.

Yellen's rate hike endorsement was just what the currency market was looking for to take the already-bullish dollar yet higher after a recent run of upbeat U.S. economic indicators and comments from top Fed officials that supported a near-term tightening.

The euro hovered near a 2-1/2-month low of $1.1109 after shedding 0.7 percent on Friday.

The dollar index added to Friday's gains to touch 95.828 , its highest in two months.

The greenback was up 0.3 percent at 110.660 yen after rising to 110.805, its highest since April 28.

In addition to the latest round of hawkish-sounding comments from Yellen, political developments in Tokyo were also seen supporting the dollar against its Japanese counterpart.

Japanese Prime Minister Shinzo Abe plans to delay an increase in the sales tax by two and a half years, a government official said on Sunday.

Japan is also seen compiling a supplementary budget to boost the sputtering economy, a move which is widely expected to be followed by further monetary easing by the Bank of Japan.

"Fiscal policy is positive for the yen, but if the stimulus is accompanied further monetary easing, then it is a yen-weakening factor as brings the concept of 'helicopter money' to mind," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.

While a delay in the sales tax hike could shield the floundering economy from a tax shock, it means less income for the cash-strapped government, possibly prompting credit rating agencies to downgrade Japan's sovereign rating.

"A potential credit downgrade will also hurt the yen, so the recent developments would be negative for the yen overall," Yamamoto said.

Elsewhere, the Australian dollar was also on the back foot against a buoyant dollar. The Aussie was steady at $0.7181 after shedding 0.6 percent on Friday. A drop below $0.7145 would take the Australian dollar to a three-month low.

Sterling consolidated after dropping on Friday as investors cashed in on last week's rally generated by an ebb in "Brexit" expectations.