FOREX-Dollar rallies with investors cautious ahead of Fed

* Dollar up amid uncertainty before FOMC next week

* UK GDP, S&P lifts pound; Swedish crown falls on Riksbank

* Dlr/yen up; Japan finmin: to take steps on FX if needed

(Updates prices, adds detail, adds comment, changes
dateline, previous LONDON)

NEW YORK, Oct 26 (BestGrowthStock) – The dollar rose on Tuesday,
with investors wary of betting against it because of
uncertainty over the extent of quantitative easing measures the
Federal Reserve may take next week and as the euro again failed
to hold above the $1.4000 level.

The Swedish crown was the other significant mover, falling
sharply because the central bank, which raised interest rates
as expected, said future rate increases would be more gradual
than expected. [ID:nLDE69P0NR]

The market expects the Fed to opt for more quantitative
easing next week, but some easing is seen priced into an
already weak dollar. How much easing the Fed decides on and how
gradually it will implement is uncertain, keeping investors
edgy about building more bearish bets on the dollar.

Euro/dollar “has struggled to break sustainably above
$1.40,” said Camilla Sutton, chief currency strategist at
Scotia Capital in Toronto. “We still expect this will be the
next move, however if it is unable to do so soon, we might see
some temporary weakness before markets have enough conviction
to push it above this level.”

It rose against the yen, edging away from 15-year lows
after Japan’s finance minister Yoshihiko Noda warned the
government would “act decisively” in currency markets if
needed. [ID:nTOE69O09F]

His comments pushed the greenback back above 81 yen, with
traders citing buying from Japanese life insurers and banks,
among others, on the view that Japan may intervene if the
dollar nears 80.00 yen.

“Japan has pointed out quite clearly that they will
intervene in dollar/yen if it falls too quickly and the market
is aware there is no easy one-way bet on dollar/yen downside,”
said Stephan Maier, currency strategist at Unicredit in Milan.

“Everything is dependent on the FOMC (U.S. Federal Open
Market Committee) and people don’t want to take aggressive
positions ahead of this very big decision,” he said.

EARLY TRADE

In early New York trade, the dollar was up 0.7 percent at
81.33 yen (JPY=: ). It hit a 15-year trough at 80.41 yen on
Monday on electronic trading platform EBS (JPY=EBS: ), taking it
near its record low of 79.75 yen, struck in April 1995.

Against a basket of currencies (.DXY: ) the dollar was up 0.5
percent at 77.451. It has support around 76.00-10, just below
its October 15 low of 76.144 while resistance is at 78.40.

The euro fell (Read more about the trembling euro. ) 0.4 percent to $1.3902 (EUR=: ) after failing
to close above $1.4000 on Monday. The euro has support at
1.3860, its low on Friday, and its 21-day simple moving average
at $1.3866.

The move back below $1.4000 was viewed as significant given
the euro had failed several times in recent days to break
through and hold that level.

Should it break through, resistance comes at 1.4442 which
is the 78.6 percent retracement of the move from the 1.5141
high in November 2009 to the 1.1876 low in June 2010 said Dean
Malone said Dean Malone, a currency director at Compass FX in
Dallas, Texas.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For a PDF on the G20's uneasy truce on currencies and trade imbalances: http://r.reuters.com/nan99p For an FX column on the Fed: [ID:nLDE69L1EY] For a Q&A on Japan intervention: [ID:nLDE69P0KT] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Overnight, New York Fed President William Dudley said the
Fed could provide “essential” support to the U.S. economy,
although it was uncertain whether an incremental or big bang
approach to asset purchases was better.

However, his colleague Kansas City Fed President Thomas
Hoenig warned more easing would be a “dangerous gamble”.
[ID:nN25295144]

STERLING JUMPS, SWEDISH CROWN FALLS

Sterling was a clear outperformer, rising to a one-week
high at $1.5897 (GBP=D4: ) after figures showed the UK economy
grew 0.8 percent in the third quarter, twice as much as
economists had forecast. [ID:nLDE69P0VZ]

Growth still slowed from the second quarter but the data
bolstered the pound as investors saw less chance that the Bank
of England would announce more monetary stimulus next month.
Sterling extended gains after S&P rating agency raised its
outlook on the UK to stable from negative. [ID:nWLA6239]

The Swedish crown fell broadly meanwhile, with the euro
rising more than 1 percent to a peak of 9.32 crowns (EURSEK=: ).
(Additional reporting by Jessica Mortimer in London)
(Reporting by Nick Olivari, Editing by Chizu Nomiyama)

FOREX-Dollar rallies with investors cautious ahead of Fed