* Euro eases vs dlr after hitting 2-month high above $1.37
* Fed rate decision eyed, seen lowering rates further
* U.S. inflation data also in focus; Euro zone PMIs weak
By Jessica Mortimer
(Adds quotes, changes byline, dateline, previous TOKYO)
LONDON, Dec 16 (Reuters) - The euro eased against the dollar, while the yen gained broadly as investors anticipated that the Federal Reserve will cut interest rates to near zero.
The euro edged down after hitting a two-month high above $1.37 in Asian trade as nervous investors adjusted positions ahead of the U.S. rate decision, while heightened risk aversion supported the low-yielding yen.
The single currency also fell after worries increased about a rapidly slowing euro zone economy as a purchasing managers' survey showed both manufacturing and services sector activity at a record low in December.
As signs mounted that the United States may be facing a deep and protracted downturn, the Fed is widely expected to cut interest rates by at least a half percentage point to 0.50 percent at its two-day policy meeting ending later in the day.
Investors will also focus on the accompanying statement for clues on whether the Fed will clearly state it will deploy so-called quantitative easing to restore growth.
"There's been a degree of position adjustment in the dollar after big moves overnight," BTM-UFJ currency economist Lee Hardman said.
He added, however, that any acknowledgment that the Fed is moving towards a quantitative easing approach by buying up government debt "could sour dollar sentiment in the near term".
Fed Chairman Ben Bernanke said earlier this month that the central bank could purchase long-term securities issued by the Treasury or government-sponsored agencies to cut yields and stimulate demand.
At 0909 GMT, the euro was down 0.3 percent on the day against the dollar to $1.3670 after hitting a two-month high of $1.3739 reached in Asian trade.
Against a basket of currencies, the dollar gained 0.1 percent to 82.191 as it edged off a two-month low of 81.875.
The dollar fell 0.4 percent against the yen to 90.26 yen, while the euro dropped 0.7 percent to 123.37 yen.
The yen has gained sharply recently as the financial turmoil prompted a flight out of risky assets and a swift unwinding of carry trades, where money was borrowed in the low-yielding Japanese currency to invest in higher-yielding assets elsewhere.
These rises have gathered pace as interest rates have fallen across the world to take them closer to the 0.3 percent rates in Japan.
INFLATION DATA EYED
Ahead of the U.S. rate verdict, the market was awaiting key inflation figures out of the U.S. at 1330 GMT.
The data is expected to show a significant decline in price pressures, but a bigger-than-expected fall could trigger renewed deflation fears.
"The big issue is essentially just how quickly we see this decline (in inflation) take place - anything too drastic could initiate a degree of panic, especially as we're now beyond the bounds of what can be controlled by monetary policy alone," CMC Markets analyst James Hughes said in a note to clients.
Meanwhile, euro zone data highlighted the bleak situation facing the region. The flash estimate of the Markit Purchasing Managers Index shows the manufacturing index for the euro zone fell to a new record low of 34.5 compared to 35.6 in November.
This leaves the index well below the 50 level that marks contraction in the sector and will intensify fears of a prolonged downturn in the region.
The equivalent measure for the services sector dropped to 42.0, also the lowest since the series began 10-years ago.
(Reporting by Jessica Mortimer; editing by Stephen Nisbet)