* Dollar index hits 4-month high after strong data
* Aussie, kiwi drop 1 percent on rate cut expectations
* Sterling falls 1 percent after IMF downgrade (Updates to close of U.S. trading, adds quotes, data)
By Dion Rabouin
NEW YORK, July 19 (Reuters) - The dollar rose to a four-month high against a basket of major currencies on Tuesday after the release of data showing U.S. housing starts rose more than expected in June, underpinning a theme of strength in the U.S. economy.
After June's jobs report showed U.S. employers added 287,000 jobs, beating expectations by more than 100,000, continued positive data has some investors pricing back in the chances the Federal Reserve will raise U.S. overnight interest rates, analysts said.
Fed funds futures rates show investors see almost a 50/50 chance that the U.S. central bank raises rates by its December meeting, according to CME Group's FedWatch tool. Chances of a rate hike were below 20 percent less than a month ago.
Higher interest rates increase a currency's return, making it more attractive to investors.
The dollar index .DXY , which tracks the greenback against six major currencies, rose to 97.148, its highest level since mid-March.
The rise in the dollar index was backed by a sizeable dip in the euro EUR= , which fell below $1.10 to a three-week low of $1.0998. The euro was last down 0.5 percent at $1.1017.
In Britain, investors looked past a higher-than-forecast rise in June inflation to a report from the International Monetary Fund that said Brexit uncertainty had prompted them to slash the country's growth projections for 2016 and 2017. The pound GBP=D4 fell 1.3 percent to $1.3087. of that reminded everyone of the trouble that Brexit brings to the UK economy and revived the selling in sterling," said Kathy Lien, managing director at BK Asset Management in New York.
The dollar also was boosted by expectations of upcoming central bank easing from the Reserve Bank of Australia and Reserve Bank of New Zealand. Australian dollar fell 1.5 percent to an 11-day low of $0.7476, while the New Zealand dollar hit a three-week trough, falling 1.35 percent to 0.7018, as investors ramped up bets that both central banks could ease monetary policy as early as next month.
The dollar had earlier touched a more than three-week high against the yen JPY= of 106.52 yen, but reversed those gains to turn negative after breaking through its 50-day simple moving average.
It was last down 0.1 percent at 106.04 yen.
"The dollar ... went up very far, very fast and tried to break through a pretty key technical level," Lien said. "It failed there and you're seeing a reversal off that."