LONDON - The euro rose on Tuesday, drawing support from the European Central Bank's plans to raise interest rates to contain inflation, while the yen retested a 24-year low as the Bank of Japan's ultra-loose monetary policy stance continued to weigh.

The euro was 0.5% firmer at $1.0563 after ECB Chief Economist Philip Lane said the ECB will raise interest rates by 25 basis points at its July meeting, but the size of its September hike is still to be decided, suggesting a larger 50 basis point hike could be on the cards.

Meanwhile, ECB policymaker Francois Villeroy de Galhau said the central bank's planned instrument against financial fragmentation must allow it to back up its commitment to defend the euro.

"The pledge to deal with fragmentation makes it easier for the ECB to raise rates because they can do so while keeping a particular eye on one or two troubled markets," said Marshall Gittler, Head of Investment Research at BDSwiss.

Elsewhere, the dollar rose 0.2% to 135.35 yen, not far off a 24-year high of 135.60 yen hit early last week, after the Bank of Japan on Friday dashed any expectations of a change in policy and renewed its commitment to its ultra-easy monetary stance.

The dollar index, which tracks the greenback against six major peers including the euro and the yen, was down 0.3% at 104.10, with eyes on Federal Reserve Chair Jerome Powell's testimony to Congress, which kicks off on Wednesday.

"The next big dollar input will be when Fed Chair Jerome Powell delivers his semi-annual monetary policy testimony to the Senate - which judging from the latest FOMC meeting should be pretty hawkish and means that any dollar downside today is likely to be limited," ING analysts said in a note.

Two other Fed policymakers are due to make public remarks later on Tuesday, with traders watching their comments closely for clues about the interest rate trajectory.

The Australian dollar rose 0.3% after Reserve Bank of Australia governor Philip Lowe signalled a lot more policy tightening ahead, although he played down the chances of a super-sized 75 basis point rate hike.

The dollar lost 0.2% to 0.9651 Swiss francs, while sterling ticked up 0.4% to $1.2294 ahead of Wednesday's inflation figures.

Largest cryptocurrency bitcoin was up 2% at $20,978 having failed to break strongly above or below the psychologically significant $20,000 level in recent days.

(Reporting by Samuel Indyk in London and Alun John in Hong Kong; Editing by Emelia Sithole-Matarise)