Interest rates in the US are set to become higher than those in the euro zone for the first time since 2001, if an expected rise in US rates is sanctioned tomorrow.

Mr Austin Hughes, chief economist with IIB Bank, said the expected small rise in US rates would be a positive development in that it would indicate continued confidence in the US economy.

He said policymakers hope it will support and help stabilise the dollar, though market analysts were not so sure. An important issue would be the phrasing used by the Fed when making its announcement on Tuesday.

Mr Jim Power of Friends First said he believed the rise had already been built into the market and would not do anything to strengthen the dollar.

"If they were to give a half a per cent rise, that might have some impact, but I don't think that is going to happen."

He believed the expected US change will have no impact on euro zone rates, which he did not expect to rise for some time.

Federal Reserve officials are expected to nudge interest rates up tomorrow for a fifth time this year, another small step in a campaign to gradually lift borrowing costs before inflation appears.

The Fed has raised overnight borrowing costs by a quarter-percentage point at each of its last four policy sessions, and analysts are unanimous in the view that a fifth small hike will come when officials meet this week.

Another quarter-point move would take the bellwether federal funds rate, which banks charge each other for overnight loans, to 2.25 per cent - a level analysts said is still low enough to offer an economic boost.

The Fed began raising its benchmark rate in June from an extremely low 1 per cent, where it stood after 13 cuts that helped the economy through the 2001 recession and a shaky recovery.

The dollar has weakened against other currencies, which should give a boost to US exporters and put some upward pressure on consumer prices.

US economists say the Fed wants to get rates up to a level that neither spurs nor reins in growth before widespread inflation pressures develop.

Many analysts think that might mean interest rates a full percentage point or more higher by the end of next year.