LONDON (Reuters) - The dollar rose above 110 yen for the first time in six years and held near a two-year peak against the euro on Wednesday, as investors added to bets that U.S. data will drive the Federal Reserve to tighten policy.

Commodity currencies such as the Australian and New Zealand dollars suffered as oil and copper prices remained under pressure, with the Aussie hit particularly hard by weaker-than-expected retail sales data.

The dollar was up 0.2 percent at 109.90, having risen past 110 yen during Asian trade. It eased from a high of 110.09 yen on profit taking, but most traders said the outlook for the dollar remained bullish.

"The yen remains under pressure," said Esther Reichelt, currency strategist at Commerzbank. "Good U.S. data might lead to a serious test of the technically important resistance at 110.67 yen, which was the August 2008 high."

Better-than-expected U.S. data, especially labour market numbers and manufacturing activity, could fan prospects of an early rate hike by the Fed.

"Friday's non-farm payrolls will be key, as it could raise rate hike expectations another notch," said Shinichiro Kadota, chief Japan FX strategist at Barclays Bank in Tokyo.

The market barely reacted to a comment by a Japanese government spokesman who said the weak yen needed to be monitored, but traders remained on guard in case authorities' warnings becomes louder.

The dollar also rose against the euro, given fresh evidence of a slowdown in euro zone inflation. That fed expectations of a divergence between monetary policies in Europe and the United States, with the Fed expected to tighten at some point.

Many believe the U.S. economy is on a recovery path that will allow the Fed to raise interest rates well before the European Central Bank and Bank of Japan.

The euro languished near a fresh two-year trough, having come under pressure after data showed euro zone annual inflation cooled to 0.3 percent in September from 0.4 percent, intensifying the case for the ECB to offer more stimulus.

The common currency fell as far as $1.2571 on Tuesday and was last trading at $1.2595, down 0.3 percent. The euro lost nearly 4 percent in September -- its biggest decline in over two years -- and the latest manufacturing activity reports from Spain and Italy did little to offer the euro any support.

Analysts said the soft inflation data from the euro zone would keep pressure on the European Central Bank to address the risk of deflation. The ECB meets on Thursday to discuss monetary policy.

"Indeed, with euro zone inflation hitting a cycle low and the core reading at 0.7 percent, the risks of entering deflation in the euro zone are building. Inflation expectations in Europe have collapsed to levels previously seen in 2010 when euro/dollar was trading around $1.20," Morgan Stanley said in a note.

"The breach of the $1.26 level will certainly bring the 1.20 lows, last seen in 2012, back into focus."


(Additional reporting by Shinichi Saoshiro in Tokyo; Editing by Alison Williams)