* Euro's decline seen less severe as more QE from Fed looms
* Median EUR/USD forecasts upgraded for 2nd time this year
* Euro weakness against sterling also seen less marked
* More volatile month seen ahead for euro trade
By Andy Bruce
LONDON, Oct 6 (Reuters) - The euro's expected retreat versus the dollar over the next year will be more modest than thought a month ago, a Reuters poll showed, as the U.S. Federal Reserve may be about to embark on more asset purchases.
The survey of around 60 foreign exchange strategists showed the euro would weaken from its current level around $1.385 to a median $1.30 in a year's time -- a seven cent upgrade from the $1.23 seen in September's poll.
Analysts bumped up their median forecasts for all of the one-, three-, six- and 12-month timeframes for just the second time this year, after no-one last month came close to predicting the extent of the euro's rise in September.
The dollar hit an 8-1/2 month low against a basket of currencies on Wednesday, hurt by expectations that the Federal Reserve will resume quantitative easing -- dubbed QE2 -- to spur U.S. economic growth, possibly at its November meeting.
"Speculation that the Fed may start QE2 as early as in November should keep the greenback under siege for now, although this event is now quite priced in by markets," said Roberto Mialich of UniCredit.
He said a correction is likely by the end of the year, when investors are expected to focus again on the problems of sovereign euro zone debt.
More QE, through which the Fed would buy mortgage-related and Treasury bonds to inject fresh funds into the economy, would be negative for the greenback because the purchases would entail vast sums of newly-created dollars.
Fed Chairman Ben Bernanke said on Monday that the previous round of QE had helped ease credit conditions, adding that further asset purchases could help further.
Despite the prospect of QE in the United States, analysts said the euro would not return to an ascendant long-term trend any time soon while fears about the poor fiscal state of many euro zone countries persist.
Ireland on Thursday revealed the spriralling cost of its banking sector bailout as its government prepares more painful austerity measures, while Spain lost its remaining top-notch "AAA" credit grade from Moody's ratings agency.
"The outlook in the euro zone is very uneven ... and with a dire outlook in several countries," said Niels Christensen of Nordea, adding that this should eventually bring the euro lower.
Analysts expected the euro to weaken to around $1.36 in a month's time, $1.35 in three, and $1.32 in six months -- still a sizeable upgrade from the respective forecasts of $1.26, $1.25 and $1.24 from Septemeber's poll.
That would bring relief to EU policymakers, who are perturbed by the weakness of the Chinese yuan. They say China's currency is artificially weak and is eroding jobs and competitiveness in advanced Western economies.
IMF Managing Director Dominique Strauss-Kahn said on Tuesday that countries risk undermining the global economic recovery if they use currencies to try and boost domestic growth, in an interview with the Financial Times.
MODEST WEAKENING VS GBP
In common with the euro-dollar forecasts, strategists in the latest Reuters poll predicted a more modest weakening of the euro against sterling.
They saw the euro reaching 85 pence in three months, 84 pence in six and 82 pence in a year's time, compared with a 12-month forecast of 80 pence in September's poll.
In coming weeks, the pound could be vulnerable while Britain's coalition government is in the formative stages of implementing its austerity programme.
"Expect sterling to be caught between a weak dollar and a strong euro in the short-term," said Nordea's Christensen.
Strategists expect a sharp increase in euro volatility in October, according to Reuters' calculations derived from the standard deviation of forecasts.
After actual euro volatility turned out to be a less-than-expected 11.8 percent last month, forecasters expect a sharp pick-up to 16.3 percent over the next few weeks.
(Polling by Bangalore Polling Unit, Analysis by Namrata Anchan, Editing by Ross Finley and Ron Askew)