* Dollar index flat at 76.315
* Sterling falls 0.5 percent vs dlr on UK bank shake-up
* Aussie dollar erases gains after RBA hikes as expected
* Japanese markets closed for holiday
(Recasts, adds quotes, updates prices, changes dateline prvs TOKYO)
By Tamawa Desai
LONDON, Nov 3 (Reuters) - The dollar held steady on Tuesday before the start of the U.S. Federal Reserve's policy-setting meeting, while the Australian dollar fell after its central bank raised rates but took a cautious stance going forward.
Falls in European share prices also supported the dollar, which has a tendency to gain when investors shed risk assets. Movements in the foreign exchange market were further dulled because Tokyo markets were closed for a national holiday.
The dollar fell as stocks gained the previous day after data showed a pick-up in manufacturing activity round the globe, but later lost some ground on concerns about the banking system.
Sterling tumbled against the dollar on Tuesday when details were published of a shake-up of some government-acquired banks.
Shares in Royal Bank of Scotland fell some 5 percent in early trade after it agreed to sell off some businesses.
In contrast, Lloyds Banking Group stocks rose some 2 percent after it said it would launch a record 13.5 billion pound ($22 billion) rights issue.
But UK and European shares were down 1.0 percent in early trade. A poor performance from UBS also weighed on shares.
At 0725 GMT, the pound was at $1.6308, down 0.5 percent on the day, after falling to a one-week low of $1.6292.
A dearth of major economic data during European hours will likely leave traders taking their cue from stock markets. But they remain wary -- as well as the Fed, the European Central Bank and the Bank of England will also hold policy meetings this week.
The Fed is expected to keep its benchmark interest rate unchanged near zero, where it has been since December. The focus is on how policymakers will represent future options, but many analysts say the Fed is unlikely to change the wording of keeping rates low for an "extended period."
The Fed will announce its decision on Wednesday.
The dollar index was flat at 76.315, but holding well above October's 14-month low of 74.94.
Some traders said profit-taking on risk assets would also cap gains in share prices and may put a floor under the dollar and yen for now.
"Year-end position liquidation could also prove disruptive to capital markets as investors crystallise this year's gains," said Geoffrey Yu, currency strategist at UBS.
The euro was down 0.1 percent at $1.4754, with support seen around $1.4683 and resistance around $1.4859.
"We have a slew of central bank meetings starting today. It's going to be a bit uncertain and nervous, and under the circumstances a bit of range trading," said Andrew Robinson, currency strategist at Saxo Capital Markets in Singapore.
The yen gained some ground, rising 0.5 percent against the euro to 132.63 yen, and gaining 0.4 percent at 89.97 yen per dollar.
AUSSIE FALTERS
The Reserve Bank of Australia (RBA) raised its cash rate for the second month running, taking it to 3.5 percent from 3.25 percent as expected but leaving the market guessing if it would hike again as soon as December.
Markets were still pricing in the chance of a 25 basis point increase in December, albeit a reduced chance.
The Aussie dollar fell to a session low of $0.8957 versus $0.9042 in late U.S. trade on Monday.
Commodity currencies rose in the Asian session after news the International Monetary Fund sold 200 tonnes of gold to the Reserve Bank of India, executing half of a long-planned sale. (Additional reporting by Charlotte Cooper in Tokyo; Editing by Ruth Pitchford)