* Euro hits 1-1/2 week low, stg falls to 2-wk low vs dlr
* Dollar index up 0.1 percent at 79.322
* China stocks fall, prompting investors to cut yen shorts
* BoE Inflation Report, FOMC decision awaited
(Recasts, adds quotes, prices, changes dateline prvs TOKYO)
By Tamawa Desai
LONDON, Aug 12 (Reuters) - The dollar steadied against other major currencies apart from the yen on Wednesday as market participants pulled back from riskier assets ahead of the U.S. Federal Reserve's policy decision later in the day.
Global shares fell, oil prices dipped below $70 and government bond prices rose as markets fretted recent optimism that had boosted speculation of higher U.S. interest rates may be overdone.
But analysts said the dollar's gains may be tempered.
"Unless the Fed delivers a markedly upbeat statement that can bring forward tightening expectations, or starts to detail exit strategy tools, it looks as though the dollar will struggle to build on recent gains," said Chris Turner, head of FX strategy at ING.
Sterling dropped to a two-week low against the dollar ahead of the Bank of England's quarterly Inflation Report and subsequent news conference, which are expected to shed further light on the central bank's surprise decision last week to boost its quantitative easing programme.
At 0759 GMT, the euro also dipped to an 1-1/2 week low against the dollar of $1.4087 while the single currency also fell more than one percent against the yen at 134.10 yen.
The Japanese currency was also higher against the dollar. Traders said the dollar's jump to an eight-week high near 98 yen late last week following better-than-expected U.S. employment data was overdone, and investors were now cutting dollar long positions versus the yen.
The dollar fell as low as 95.13 yen, down some 0.7 percent compared with late U.S. trading on Tuesday.
Falling Chinese stocks dented demand for riskier currencies and prompted investors to cut long positions in higher-yielding currencies such as the Australian dollar.
The Australian dollar fell 1.75 percent against the yen at 78.12 yen while it dropped 1.2 percent at $0.8199.
Sterling fell to $1.6391. Traders also awaited labour market statistics due out at 0830 GMT, which is expected to show the jobless rate rising.
The Fed is expected to keep U.S. interest rates steady at near zero at a meeting that concludes on Wednesday, but end its long-term government securities buying program amid signs the economy is stabilizing from a deep recession.
Policymakers will steer a careful course in acknowledging signs a turnaround may be near without triggering expectations that interest rate rises are imminent. The Fed's policy statement is expected at 1815 GMT.
"The market is currently pricing in a 50 percent probability that the first rate hike will take place at the end of Jan. 10 and Fed comments pointing towards a later date could be short-term dollar negative," said analysts at Commerzbank.
Norway's central bank also makes a rate announcement, with key interest rates widely expected to remain at a record low 1.25 percent.