* Dollar drops to lowest since Japan intervened last week
* Dollar index drops to lowest in six months
* Euro at seven-week high, August high of $1.3334 eyed
(Updates prices; changes byline, dateline; previous TOKYO)
By Anirban Nag
LONDON, Sept 22 (Reuters) - The dollar fell on Wednesday to its lowest level versus the yen since Japan intervened last week, with the dollar index hitting a six-month trough after the Federal Reserve raised expectations of more monetary easing.
But the market was wary about selling the dollar against the yen too aggressively, anxious it might trigger another wave of intervention by the Japanese authorities that wrong-footed many investors, including hedge funds, last week.
"The Fed has lowered the bar for more quantitative easing and the market is just following the path of least resistance in selling the dollar," said Paul Mackel, director of currency strategy at HSBC Markets.
"Having said that, sellers of dollar/yen will have to be very nimble as intervention risks are very high. We would expect the Japanese to intervene once the price action gets too one-sided."
By 0745 GMT, dollar was down 0.4 percent against the yen at 84.76, well off last week's high of 85.94 yen. It fell as far as 84.74 yen, about two yen above a 15-year low of 82.87 set last Wednesday just before Japanese authorities intervened to send it three yen higher in a day.
Traders cited stops around 84.70 yen to check the dollar's fall.
Many traders expect Japan may step in somewhere between 83.00 and 85.00 yen. They said the authorities have called around banks to ask if they will be staffed on Thursday, a Japanese national holiday, in an apparent attempt to keep traders cautious over intervention.
"I suspect we may need to see the dollar fall a bit faster against the yen to trigger intervention for now. But they will probably intervene if the dollar falls below 83 yen," said a trader at a Japanese bank in Tokyo.
Last week, Japan intervened minutes after the dollar fell below 83 yen to a 15-year low, its first intervention since 2004.
Japanese Prime Minister Naoto Kan fed intervention jitters by telling the Financial Times intervention was 'unavoidable' if there was drastic change in the currency.
RACE TO THE BOTTOM
The dollar index, a measure of its performance against a basket of six currencies, fell to 80.013, its lowest since mid-March.
The drop in the index came after the Fed expressed greater concern about sluggish U.S. growth and low levels of inflation in a statement that many took as opening the door wider to pumping more dollars into the economy.
"A break below the key 79.50-80 region appears to be just a matter of time," Robert Rennie, chief currency strategist at Westpac said in a note. "The coming weeks will be very challenging for the U.S. dollar."
The euro rose as far as $1.3330, up 0.4 percent after climbing 1.5 percent on Tuesday. It firmed past its 200-day moving average on Tuesday and chartists say the next target is its August high of $1.3334.
A fall in U.S. Treasury yields compounded the dollar's problems, with short-dated yields at record lows after the Fed statement, making U.S. debt less attractive to Japanese investors.
The dollar also fell to a 10-month low against the Swiss franc, dropping to 0.9925 francs and its lowest since late November 2009.
(Additional reporting by Tokyo forex team)