* Dollar index touches 3-mth peak, euro/dollar near 3-mth low
* Dollar/yen seen capped under 125 yen for time being
* Aussie central bank calls for more weakness (Recasts, changes dateline from previous TOKYO)
By Patrick Graham
LONDON, July 21 (Reuters) - The dollar built further on a week of gains due to resurgent expectations for rises in U.S. interest rates on Tuesday, reaching a five-week high against the yen and a three-month peak against a basket of currencies.
St. Louis Fed President James Bullard's prediction on Monday that the Federal Reserve was likely to raise rates in September continued to drive the dollar higher in Asian trade. ID:nL1N1000QT
There was more stability to commodity-linked currencies like the Canadian, New Zealand and Australian dollars, which have taken a battering as the dollar has rallied this month, although the Aussie was hurt by comments from the country's central bank.
While gold prices stabilised after a shocking slide on Monday, minutes from the Reserve Bank of Australia's latest meeting called for more falls in a currency already at its lowest in six years.
"We're taking a bit of a breather on the trends today, but my feeling is there is still weakness to come," said Ian Stannard, head of European FX strategy at Morgan Stanley in London.
"They are not getting the benefits yet of the weakness we have already seen in the Aussie and they're still calling for more."
The RBA's line differed from that in New Zealand, where Prime Minister John Key offered the currency some verbal support on Monday, and the Aussie's 0.1 percent fall to $0.7366 contrasted with a half a percent rise in the kiwi to $0.6601.
Sterling, the other currency to benefit from expectations of a rise soon in official interest rates, was up 0.1 percent against the dollar and the euro in early trade, with eyes moving towards Wednesday's publication of Bank of England minutes.
Analysts think there may be more signs in those of a drift by some members towards raising rates around the end of this year or early next.
There are contradictions in all of these positions. If the euro is to remain weak against the dollar, it will be on the back of extremely loose monetary policy aimed at propping up an economy still struggling for growth.
Yet that should hurt the UK.
Likewise, the weakness of the Aussie, Kiwi and other currencies traditionally dependent on commodity prices for direction is due in large part to a slowdown in China -- which should also have an effect on the U.S. economy.
The dollar was steady at 124.30 yen, having hit a five-week high of 124.48 late in the Asian session. The dollar index against a basket of currencies extended this week's three-month peak to 98.151.
The U.S. currency has climbed steeply from a low near 120 yen plumbed at the start of the month when angst over the Greek debt crisis and sliding China shares triggered a rush into the safe-haven Japanese currency, but the 125 threshold could be a tough ceiling to top.
"The approach to 125 yen takes dollar/yen into politically sensitive territory," said Junichi Ishikawa, market analyst at IG Securities in Tokyo. "Any big gains by the dollar just as the Trans-Pacific Partnership (TPP) talks are climaxing could stimulate those on both sides of the Pacific opposed to the negotiations, and the authorities would not want that."
The euro inched up 0.2 percent to $1.0853, in the middle of a range it has held since the end of last week EUR= .