* Dollar retreats from 1-month high vs basket, euro
* Focus on whether Fed will keep low rate pledge
* U.S. service sector grew in October, but below forecast (Updates with ISM services data, adds quotes, updates prices)
By Wanfeng Zhou
NEW YORK, Nov 4 (Reuters) - The dollar fell against the euro and a basket of currencies on Wednesday as firmer equity and commodity prices buoyed risk appetite and investors braced for a policy decision from the Federal Reserve.
The decision at about 2:15 p.m. (1915 GMT) is the key news for the day, with the focus on whether the policy-setting Federal Open Market Committee will uphold its pledge to keep the benchmark fed funds rate low for "an extended period" even as the economy shows signs of improving.
The dollar hit a session low versus the euro after a report showing the U.S. service sector grew in October for the second consecutive month helped stocks on Wall Street extend gains.
"Investors are probably looking at the increase in new orders, which is a leading indicator for economic activity," said Jacob Oubina, currency strategist at Forex.com in Bedminster, New Jersey. "Also export orders increased which suggests that dollar weakness is helping boost exports. That's a welcome sign for the economy."
But overall, Oubina said, the report was mixed and that "the most worrisome" is the drop in the employment index, which "doesn't bode well for Friday's nonfarm payrolls report."
In mid-morning trading, the euro was up 0.8 percent on the day at $1.4832 after hitting a session high of $1.4842, according to Reuters data. On Tuesday, the euro zone single currency hit a one-month low around $1.4623.
The ICE Futures U.S. dollar index, which measures the dollar against a basket of six other major currencies fell 0.7 percent to 75.851, pulling away from a one-month high of 76.817 hit on Tuesday.
Given the unwinding of gains in higher-yielding assets in recent days, analysts said any indication U.S. interest rates will stay low would prompt investors to take on riskier investments such as stocks and commodity currencies, which may push the dollar lower.
"With the FOMC due later today volatility (in currencies) could spike substantially if the Fed chooses to change its language," said Boris Schlossberg, director of currency research at GFT Forex in New York.
"For now, however, risk trades continue to dominate on the broad market belief that (the Fed) will not change the key words 'extended period'," he added. (Additional reporting by Gertrude Chavez-Dreyfuss; Editing by James Dalgleish)