* Dollar falls to 7-month low versus yen * Euro stays near 4-month high against dollar * Dollar could extend falls if Fed opts for more stimulus * SNB keeps Swiss franc cap at 1.20 per euro By Gertrude Chavez-Dreyfuss NEW YORK, Sept 13 (Reuters) - The U.S. dollar dropped to a seven-month low against the yen on Thursday and held near a four-month trough versus the euro on increased expectations the Federal Reserve will announce a third round of monetary stimulus. Many in the market expect the Fed will launch a new asset purchase program when it issues its policy decision later in the day after the close of a two-day meeting. A new round of bond purchases, known as quantitative easing, is viewed as negative for the dollar. "Given Bernanke's comments at Jackson Hole, the markets expect some sort of easing," said Matthew Lifson, senior trader and analyst at Cambridge Mercantile Group in Princeton, New Jersey. Fed Chairman Ben Bernanke, at the Fed's annual conference in Jackson Hole, Wyoming, last month, had stressed the need to bring down the country's stubbornly high jobless rate and said the U.S. central bank would act as needed to spur the recovery. Lifson noted that the dollar's sell-off this week has been due to expectations of further monetary stimulus from the Fed. If the Fed does announce new easing measures on Thursday, Lifson said it would initially be dollar-negative, but may not have much lasting impact. The dollar fell to 77.41 yen, its lowest level since mid-February when the Bank of Japan unexpectedly eased monetary policy. Further falls would put markets on alert for possible intervention by Japanese monetary authorities to stem the rise in the yen, traders said. U.S. jobless claims data on Thursday was weaker than expected as new claims hit a two-month high, reinforcing the view on Fed easing, even though producer prices rose more than expected. The euro was little changed at $1.2903, not far from a four-month high of $1.2936 reached on Wednesday. The euro remained firm after Germany's Constitutional Court on Wednesday cleared ratification of the euro zone's permanent rescue fund, paving the way for the European Central Bank to buy bonds of struggling countries in the region. "Although the market broadly expects more easing from the Fed, the euro should pop up" if the Fed does take new stimulus steps, said Gavin Friend, currency strategist at National Australia Bank. "It might get almost to $1.30 and next week should consolidate around that level." "We are talking about a significant reduction in the tail risks surrounding the euro zone," Friend said, adding he expected the euro to trade in a range between $1.26 and $1.31 in coming months. But if the Fed fails to deliver new stimulus, he predicted the euro's fall would be limited to around $1.2850. Traders cited chart resistance for the euro at the 233-day moving average at $1.2938 while a reportedly large options expiry at $1.2900 later in the day could influence price action and keep the euro trading close to that level. The currency has risen more than 7 percent from July's two-year low of $1.2042, buoyed after the ECB pledged to do whatever it takes to preserve the currency. The euro rose 0.2 percent against the Swiss franc to 1.2109 francs, having earlier dipped after the Swiss National Bank said it would maintain its 1.20 franc floor in euro/Swiss. The move disappointed some investors who had speculated the SNB might raise the floor, but analysts said the fact the euro did not sell off heavily was a sign of growing confidence in the ECB's plan to tackle high borrowing costs in heavily indebted member countries. FED IN FOCUS Mounting expectations the Fed might print more dollars, thereby cheapening the currency's value, pushed the dollar index down 0.1 percent to 79.684, keeping it near a four-month low of 79.522 on Wednesday. Many Fed watchers believe any new asset purchase program would be open-ended, unlike the past two cycles of quantitative easing. That would allow the central bank to review the size of its purchases on a frequent basis and adjust the program as economic circumstances warrant. "The market has not 100 percent priced in QE3 yet," said Masafumi Yamamoto, chief FX strategist at Barclays. He said that if the Fed does launch QE3, what would be important is whether the monthly purchase size was larger than the previous QE round's $75 billion, regardless of whether the new program was open-ended. Also helping the euro was the result of elections in the Netherlands, where pro-European parties crushed radical fringe groupings, dispelling concerns that euro-skeptics could gain a power base in one of the euro zone's core states. The euro slid against the yen, trading at 100.07 yen but not far from Wednesday's high of 100.64 yen.