* Dollar index up half a percent more in Europe

* Fed officials keep rate hike talk alive

* Japan investors sold net Y3.1 trln foreign bonds last week

* Sterling one-month volatility jumps as election nears (Recasts after start of European trade, changes dateline from previous SYDNEY/SINGAPORE)

By Patrick Graham

LONDON, April 9 (Reuters) – The dollar touched a one-week high on Thursday after two influential Federal Reserve officials kept alive expectations for a rise in U.S. interest rates before the end of this year.

On sterling, the cost of insuring against volatility over the course of the next month, which now takes in the results of a May 7 parliamentary election, soared to the highest in 3-1/2 against the dollar and six years against the euro.

New York Fed President William Dudley and Fed Governor Jerome Powell on Wednesday sketched out scenarios in which the central bank might lift rates earlier than many now expect and then proceed in a slow and gradual manner on further increases.

Jobs figures last week pushed out such expectations to the end of the year or later, but the chief response in foreign exchange markets has been to use the resulting dip to buy back into the U.S. currency this week.

Analysts also saw no sign of deeper concern at the Fed over the dollar’s rise, one factor in a more mixed performance in the past month.

“I think a lot of the move around last weekend was driven by positioning. You can see that the market still has its core view that the dollar is heading higher,” BNP Paribas strategist Michael Sneyd said.

The prospect of a rise in U.S. rates, even if it does not come until next year, still stands in stark contrast to Europe and Japan where some believe quantitative easing still has years to run. Stronger European data in the past fortnight has offered the euro some support but has not changed that view, which is at the heart of a more than 20-percent rise in the dollar’s value since the middle of last year.

The dollar index rose 0.4 percent to a one-week high of 98.386 in early European trade. Against the euro, it rose 0.3 percent to $ 1.0744. It was up just 0.1 percent at 120.25 yen .

One factor weighing on the yen in recent months has been overseas investment by Japanese investors.

Weekly capital flows data on Thursday showed that Japanese investors bought a net 424.4 billion yen in foreign equities last week, their 20th straight week of such net purchases.

However, they sold a net 3.1 trillion yen in foreign bonds, their biggest weekly net sales based on data going back to 2005.

Such net selling of foreign bonds may have occurred towards the end of Japan’s fiscal year at the end of March, to book profits in existing positions, Standard Chartered’s global head of FX research, Callum Henderson, said.

“On the face of it a modest positive for the yen, but we need to see whether or not this continues in the month of April… Typically April sees new foreign investments,” he said.

(Editing by Louise Ireland)