September 11, 2013 / 4:33 PM / 4 years ago

FOREX-Dollar trades near two-week low on Fed outlook

* Yen falls to 3-1/2-month low vs euro, four-year low vs sterling

* Obama speech reduces chances of U.S. strike against Syria

* Fed meeting in focus as markets await stimulus trim

By Wanfeng Zhou

NEW YORK, Sept 11 (Reuters) - The dollar fell to near two-week lows against major currencies on Wednesday as some traders pared back bets on a reduction in stimulus by the Federal Reserve next week.

The yen rebouned against the dollar, though remained close to a seven-week low struck earlier. The yen also hit a 3-1/2-month trough versus the euro, and a four-year low against sterling, as easing tensions over Syria dented demand for the safe-haven Japanese currency.

Traders said uncertainty about Syria and the Fed could keep major currencies in a range. The Federal Open Market Committee meets next Tuesday and Wednesday and doubts about a scaleback in stimulus have risen following last Friday's disappointing jobs data.

"I don't think there's a whole lot of room before Wednesday's FOMC, but I do think there's going to be a little bit of pressure on the dollar heading into that as more traders take bets off of the likelihood of Fed taper," said Andrew Dilz, foreign currency trader at Tempus Inc in Washington.

The dollar index, a measure of the greenback versus six major currencies, slipped 0.3 percent to 81.593, having hit a low of 81.506, the weakest since Aug. 29.

The euro rose 0.3 percent to $1.3301. The dollar fell 0.3 percent to 100.12 yen, not far from a session peak of 100.60 yen, according to Reuters data, which was the strongest since July 22. Analysts said the dollar would likely hold above the 100 yen level in coming sessions.

Lower U.S. Treasury yields also contributed to pressure on the dollar, analysts said.

"It is a combination of things ... tensions in Syria, which had been negative for risk-assets and supported the yen, have eased a bit. Also global economic data over the last couple of weeks has been relatively good," said Paul Robson, currency strategist at RBS Global Banking.

U.S. President Barack Obama pledged on Tuesday to explore a diplomatic plan from Russia to take away Syria's chemical weapons, although he voiced skepticism about it and urged Americans to support his threat to use military force if needed.

A string of solid data out of China this week reinforced expectations that the world's No. 2 economy is stabilizing after slowing for more than two years.

The euro was down 0.1 percent at 133.07 yen, having hit a an intra-day peak of 133.36 yen, its highest since May 22. Sterling rose 0.2 percent to 158.20 yen.

Better-than-expected economic data and improving market sentiment has helped the single currency lately, but analysts at Morgan Stanley warned the euro's strength could be short-lived and they remain sellers on any rallies.

"A break above the August high of (around) $1.3450 is unlikely, and we would look to sell around the $1.3320 level," they wrote to clients.

Sterling's trade-weighted index rose to an eight-month high on Wednesday as the UK jobless rate dropped, supporting bets that interest rates could be tightened by the end of next year.

Against the dollar, sterling rose 0.5 percent to $1.5804 .

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