FOREX-Dollar steady as market awaits FOMC; yen up

(Changes dateline and byline, updates prices, adds quotes)

By Jamie McGeever

LONDON Jan 30 (Reuters) - The dollar steadied against a basket of major currencies on Wednesday as investors awaited the Federal Reserve's U.S. monetary policy decision later in the day, which will likely be another recession-fighting rate cut.

The main question markets are facing is whether the Federal Open Market Committee's cut will be a quarter or half percentage point, although some analysts are pinning an outside chance on a 75 basis point cut or even no change at all.

The yen, meanwhile, strengthened broadly. Concern about the U.S. economy and renewed fears about the global banking sector after Swiss bank UBS unveiled $4 billion in new write-downs dampened risk appetite, pulling investment out of equities and into traditionally safer assets such as government bonds and funding currencies like the yen.

Economic data releases on Wednesday include the first estimate of fourth quarter U.S. growth and ADP Employer Services' snapshot of the U.S. private sector labour market in January, which some see as offering clues for Friday's official non-farm payrolls report.

For more on the UBS write-down and economists' economic data forecasts, click on [ID:nL30428633] and [ECON].

But all eyes are on the Fed.

"Things are reasonably stable in the market now because of the FOMC. A lot of risk has been taken off the table. The FX market is looking for the Fed to give it direction," said Peter Frank, senior currency strategist at Societe Generale in London.

"The last thing they want to do is stoke up risk aversion but they have to act aggressively. It's a fine line they have to walk here."

At 0850 GMT the dollar was little changed on the day versus a basket of major currencies at 75.51 .DXY.

The dollar was down around a third of a percent on the day against the yen at 106.65 yen JPY=, and the euro was also down a similar amount against the Japanese currency at 157.65 yen EURJPY=.

The euro was steady against the greenback at $1.4775 EUR=.

FED STATEMENT

Financial markets are currently attaching around a three-in-four chance to the Fed lowering its key fed funds policy rate 50 basis points to 3 percent. This would follow the emergency, inter-meeting cut of 75 basis points last week -- the biggest U.S. rate cut in quarter of a century.

The unravelling of the U.S. housing market and subsequent malaise spread throughout global financial markets have tilted the U.S. economy toward recession, many analysts say, which has prompted the aggressive Fed action.

A hefty Fed rate cut from the current 3.5 percent could cut both ways for the dollar, which has slipped back towards record lows hit last year against a basket of currencies.

While a bigger cut would erode the dollar's yield appeal for investors, it could also boost hopes the economy can avoid a sharper downturn this year and next and as a result give the greenback a lift.

"A 25 bp rate cut today is a possibility, but we think the Fed will prefer to do more rather than less now, not least for fear of undoing the boost to confidence created by last week's cut," wrote Standard Chartered strategists in a note to clients. "As for the statement, we think the FOMC will remain concerned about growth risks and thus leave open the door for further interest rate cuts in the future. For now at least, inflation concerns have been sidelined."

In contrast to the market expectations for U.S. interest rates, euro zone rate futures expect only 50 basis points of easing from the European Central Bank this year from 4 percent currently.