* Dollar down on speculation Fed may suggest more QE
* Aussie rallies after hawkish comments from RBA's Stevens
* Yen up but investors wary of further BOJ intervention
NEW YORK, Sept 20 (Reuters) -The dollar slipped broadly on Monday with investors positioning for the possibility the U.S. Federal Reserve may suggest the need to inject more stimulus into the economy.
The U.S. central bank meets on Tuesday and the chance of more Fed quantitative easing -- which may push benchmark yields lower, hurting the return of U.S. dollar-assets -- highlighted differences in policy among major central banks, as the Australian dollar hit a two-year high on hawkish Reserve Bank of Australia comments.
"The consensus is that the Fed won't do anything tomorrow, but if they indicate that more QE may be on the way, it would send a strong signal to sell the dollar during the week," said Kasper Kirkegaard, currency strategist at Danske in Copenhagen.
While the Fed is generally expected to refrain from implementing new steps to ease monetary policy, while renewing its promise to keep its portfolio of assets from shrinking, some investors were not taking chances. For a Fed preview, see
Midway through the New York session, the U.S. currency was 0.2 percent lower against a currency basket at 81.275, after falling earlier to 81.046, near a five-week low of 80.865 hit last week.
The Australian dollar rose more than 1 percent and touched as high as $0.9494, its strongest since mid-2008, after Reserve Bank of Australia Governor Glenn Stevens suggested Australian interest rates would rise further.
Gains were capped, however, with traders citing talk of a large option being defended just below $0.9500 with expiry at the end of the month. If the barrier is broken, traders are likely to quickly target the psychological $0.9500 level itself.
Data showing a U.S. home-builder index unexpectedly held steady in September had a limited impact on the dollar though analysts said it could add to the Fed's consideration of further stimulus through quantitative easing.
FED AHEAD
A sluggish U.S. recovery has stung the dollar in recent months as it has raised the possibility of more quantitative easing, although recent U.S. data -- while still weak -- has shown a slight improvement.
The euro rose 0.2 percent to $1.3072 after climbing as high as $1.3120, helped by a rise in European shares, though sentiment toward the single currency was still dented by concerns about Ireland's finances.
Ireland's central bank said the country would need to rethink plans to cut a bloated budget deficit.
The greenback traded in a tight range against the yen because of a market holiday in Japan and as investors were cautious of taking big yen positions after Japan's intervention last week to curb the strength of its currency.
The dollar was 0.1 percent lower at 85.75 yen, keeping in the tight range since intervention pulled the U.S. currency up from a 15-year low.
Investors were focused on whether the dollar would break above 86.00 yen.
"Asian markets were quiet overnight with the dollar/yen staying in a relatively quiet range as Japan was on holiday," said Brad Bechtel at Faros Trading LLC, in Connecticut. Bechtel said dollar/yen dipped briefly to around 85.50 as London walked in but that was "momentary."
In addition to the prospect of more intervention, strength in the Japanese currency may subside as speculators have cut bets that it will appreciate.
The latest Commodity Futures Trading Commission data shows net long yen positions fell to 47,642 as of last Tuesday, the day before Japan entered the market, from 52,183 the previous week. The cut was almost all in long positions which slippped to 61,215 from 65,440. Short positions rose to 13,573 from 13,257. (Reporting by Nick Olivari; Editing by Andrew Hay)