FOREX-Dollar declines as bond yields slip ahead of Fed

* Drop in Treasury yields weighs on U.S. currency

* Investors prepare for next week's Fed meeting

* One-week implied vols for euro/dollar rise

(Recasts with reaction to U.S. data, updates prices, adds detail, adds comments, changes dateline, previous LONDON)

NEW YORK, Oct 28 (Reuters) - The dollar slipped on Thursday, surrendering some gains from the last two days, as U.S. Treasury yields fell, making them less attractive and easing demand for the dollars to buy them.

A recent move to trim extreme short dollar positions, amid speculation the Federal Reserve will announce plans to buy more assets next week, also slowed.

The New York Federal Reserve has surveyed bond dealers and investors over the size and impact of a quantitative easing programme, with scenarios ranging from zero up to $1 trillion, Bloomberg news reported on Thursday, citing a copy of the survey. [ID:nLDE69R15M]

Traders said dollar selling against the euro and other currencies by reserve managers was also helping to push the U.S. currency down.

"In this case we are getting a little bit of a driver from lower yields," said Joseph Trevisani, chief market analyst at FX Solutions in Saddle River, New Jersey. "Lower yields and a lower dollar go together."

In early New York trade, the euro had risen 0.8 percent on the day to $1.3876. This helped to push the dollar <.DXY> 0.82 percent lower versus a currency basket on the day though it is down only a marginal 0.5 percent for the year to date.

The 10-year Treasury note was up 8/32 in price to yield 2.69 percent, down from 2.72 percent late on Wednesday. An unexpected drop in initial weekly jobless claims on Thursday capped prices on U.S. Treasury debt though they were still up from the previous session.

NARROWING SPREADS

Other analysts said the dollar was also weighed down by a narrowing in spreads between 10-year U.S. and euro zone government bonds.

But the euro held above a one-week low around $1.3734 hit on electronic trading platform EBS on Wednesday, even as debt concerns in Ireland and Greece and a breakdown in budget talks in Portugal highlighted problems facing periphery euro zone countries.

Peter Frank, currency strategist at Societe Generale in London, said support for the euro despite sovereign debt issues illustrated the resilience of the single currency, and that he expected it to rise back above $1.40 in the near term.

But worries about the banking sector and the region's debt problems could check the euro's gains. The European Central Bank's quarterly Bank Lending Survey said more banks expect to tighten their credit standards for corporate loans in Q4.

The news could check hawkish ECB intentions to scale back emergency stimulus measures, said Tom Levinson, a forex strategist at ING. "This serves as a warning on what is going on in the real economy. It's less of a positive for euro but the real dominant force is still the U.S. story."

U.S. STORY

Wall Street analysts expect the Federal Reserve to buy $80 billion to $100 billion worth of assets per month under a new programme widely expected to be unveiled on Nov. 3, according to a Reuters poll. [FED/R]

Estimates for how much the Fed will eventually spend varied from $250 billion to $2 trillion. The market has been scaling back expectations as the event draws nearer.

"The issue is whether the market believes the Fed will deliver significant quantitative easing over a definitive time line," said Frank at Societe Generale. "If they do, the dollar will weaken."

Lingering uncertainty about how the Fed will announce more QE has increased market volatility, with one-week implied volatility for euro/dollar jumping to 15.3 percent on Thursday from 12.6 percent at the start of the week.

Against the yen, the dollar fell 0.7 percent to 81.11 yen. The Japanese currency showed little reaction to a Bank of Japan decision to keep interest rates virtually at zero while holding off from new policy initiatives.

The dollar is holding above a 15-year low of 80.41 yen hit earlier this week on EBS, but investors remain vigilant for any yen-weakening intervention after authorities entered the market last month. (Reporting by Nick Olivari, Additional reporting by Naomi Tajitsu in London, Editing by Chizu Nomiyama)