(Adds analyst comments, updates prices)
By John McCrank
NEW YORK, Aug 29 (Reuters) - The dollar touched a fresh 20-year high on Monday, lifted by hawkish comments by Federal Reserve Chair Jerome Powell, but was kept in check as the euro was boosted by growing expectations for European Central Bank (ECB) rate hikes.
The dollar index, which measures the currency's value against a basket of peers, hit 109.48 early in the session, a level not seen since September 2002.
The greenback extended gains from Friday, when Powell told the Jackson Hole central banking conference in Wyoming the Fed would raise rates as high as needed to restrict growth, and keep them there "for some time" to lower inflation running at more than three times the Fed's 2% goal.
"The Fed chairman last week sounded really hawkish, and that pretty much torpedoed the notion of a policy pivot early next year," said Joe Manimbo, senior market analyst at Convera.
Money markets ramped up bets for a more aggressive Fed rate hike in September, with the chances of a 75 basis point hike now seen around 70%. U.S. Treasury yields soared, with two-year bond yields hitting a 15-year high at around 3.49%.
Traders are looking ahead to Sept. 2, when the August U.S. employment report will be released, providing one of the last major looks at the economy's health in the face of rising rates and stubbornly high inflation before the Fed's next policy meeting.
The euro clawed higher, helped by comments from a European official that pointed to a possible 75-basis-point hike at the Sept. 8 ECB meeting.
ECB board member Isabel Schnabel warned on Saturday that central banks risk losing public trust and must act forcefully to curb inflation, even if that drags their economies into a recession.
"The euro is stealing some of the dollar's thunder and that's on the view that the ECB may match Fed's gigantic rate hike with one of its own next month," said Manimbo.
The euro was last up 0.29%, but still remained below parity with the dollar at $0.9993.
"Central banks have no interest in being anything but hawkish right now, given inflation, so they will hike rates aggressively," said Nordea chief analyst Jan von Gerich.
A comment by German Economy Minister Robert Habeck that he expects gas prices to fall soon, with Germany making progress on its storage targets, also might have supported the euro.
The dollar index, mainly based on the euro's rise, was down 0.348% at $108.8 at 3:20 p.m. Eastern time (1920 GMT).
The greenback was up 0.78% against Japan's yen at 138.76 yen.
Sterling fell to a 2-1/2-year low of $1.1649 in thin trading on a UK public holiday, versus the greenback and was last down 0.23% at $1.1703.
In cryptocurrencies, bitcoin edged higher to trade back above the $20,000 level.
(Reporting by John McCrank in New York; additional reporting by Dhara Ranasinghe in London; Editing by Christina Fincher, Jan Harvey, Nick Macfie and Richard Chang)