* Dollar index pulls further away from last week’s 7-week lows
* ECB will meet on Thursday and could signal future steps
By Lisa Twaronite
TOKYO, Oct 20 (Reuters) - The dollar held firm against the euro on Tuesday after marking a 10-day high ahead of this week’s European Central Bank meeting, which some investors believe could set the stage for additional stimulus later this year.
The euro edged slightly down against the dollar in early Asian trading to $1.1325, after dropping as low as $1.1306 on Monday.
That helped the dollar gain against a basket of six rival currencies, with the dollar index slightly higher at 94.943 , moving well away from last week’s seven-week low of 93.806.
The ECB will meet on Thursday, against a backdrop of deflationary pressure. Lower oil prices helped push euro zone consumer prices into negative territory last month, which some believe could prompt the ECB to eventually expand or extend its asset purchase programme.
Many economists believe such a move is most likely to come in December, if the ECB’s quarterly economic forecasts due early that month prove disappointing.
Economists polled by Reuters expect the ECB to extend its plan to buy 60 billion euros of assets a month of mostly government bonds beyond its planned end-date of September 2016.
“We’re thinking they’ll probably extend that date, but we’re not expecting it until the December meeting,” Jennifer Vail, head of fixed-income research at U.S. Bank Wealth Management in Portland, Oregon, said by phone.
“The extension is the most likely path for the ECB. I think increasing the size of current purchases would be problematic,” she said.
After the ECB, investors’ main focus will be the U.S. Federal Reserve’s next policy meeting on Oct. 27-28.
Investors remain divided about whether the U.S. central bank will deliver its first rate hike since 2006. Interest rate futures indicated on Monday that traders were pricing in a 52 percent chance of the Fed raising rates in March 2016, according to the CME Group FedWatch.
Fed officials have been sending mixed messages to markets in recent weeks. Chief Janet Yellen and some others have said they expect a rate hike will be needed by the end of this year, while other officials have expressed caution in light of looming risks that a slowing global economy could threaten the U.S. outlook.
“I do see the time to start raising rates in the near future, from my perspective,” San Francisco Fed President John Williams said in an interview on Bloomberg TV on Monday.
The yen, meanwhile, was treading water in its recent ranges, as investors pondered whether or not the Bank of Japan would take or signal further stimulus steps later this month to bolster the flagging economic recovery.
The dollar was buying 119.46 yen, nearly unchanged from late U.S. trade. (Editing by Shri Navaratnam)