* Dollar/yen extends gains, euro/dollar flat
* All eyes on Fed's policy meeting outcome
* RBA due at 0330 GMT, with market leaning against a hike
By Hideyuki Sano
TOKYO, Nov 2 (Reuters) - The dollar extended tenuous overnight gains on Tuesday after surprisingly strong U.S. manufacturing data prompted more short-covering but rises were seen limited ahead of the Federal Reserve's policy meeting.
The Fed is widely expected to announce a second round of monetary easing on Wednesday, with markets generally priced for the central bank to commit to buying at least $500 billion in Treasury debt over the coming months to spur a flagging economy.
Much uncertainty surrounds the scope and pace of bond purchases, however, leaving the dollar vulnerable to choppy moves in prevailing ranges.
"If the Fed's purchase is smaller than $500 billion, there will be more dollar buying in the near term, though I suspect the dollar will remain under pressure on expectations that the Fed will eventually expand its asset purchases," said a trader at a U.S. bank.
Data on Monday showed surprisingly strong growth last month in the U.S. manufacturing sector.
Alan Ruskin, global head of G10 currency strategy at Deutsche Bank, said it would provide fuel for Fed hawks who are dubious about more easing and "will tend to add to expectations that the Fed will want maximum flexibility to turn off the printing press" should strong economic data warrant it.
The dollar rose to 80.71 yen, up about 0.3 percent from late U.S. levels, though it remains within sight of the record low of 79.75 yen set in 1995.
"The market is turning cautious ahead of the Fed's meeting. As the market position has been overwhelmingly short in the dollar, the psychology at work here is that you should unwind your position," said a trader at a Japanese bank.
Japanese investors and importers are also said to be bidding the dollar, viewing its current level near record low as suitable for bargain-hunting.
Markets were keeping a wary eye on the currency pair, with the risk of Japanese intervention to weaken the yen expected to mount if the dollar slips below 80 yen.
The U.S. congressional election on Tuesday is unlikely to have any immediate impact on currencies, analysts said.
EURO IN TRIANGLE
The euro, which again failed to convincingly break above $1.4000 overnight, retreated to $1.3890, flat on the day.
Some traders cited simmering concerns on euro zone countries' debt problems as weighing on the euro after the Irish bond yield jumped almost 30 basis points on Monday, bringing its spread over German bonds to a euro lifetime high.
Still, with its moderate triangle holding pattern since mid-October firmly in place, the lower end of the triangle around $1.3750-70 is seen as a support and a good entry point for those betting on a break above the triangle after the Fed meeting.
The euro fetched 112.10 yen, up 0.3 percent on the day but not far from a five-week low of 111.53 yen hit on Friday.
The Australian dollar moved little from late U.S. levels at US$0.9882 ahead of a policy announcement at 0330 GMT by the Reserve Bank of Australia. It hit a post-float high of US$1.0004 on Oct. 15.
In contrast with the Fed, the Australian central bank is deciding whether to lift interest rates to dampen the risk of price pressures building up due in part to an export boom.
While official data showing tame inflation last week has prompted markets to put chances of a hike in the 4.5 percent cash rate on Tuesday at a slim 27 percent no one is ruling out entirely the chance of a move.
Should the RBA raise rates and signal more tightening to come, the Australian dollar could retest parity against the greenback.
A decision to keep rates unchanged would probably see only limited declines for the Aussie, as attention turns to the risk of a rate hike at the December meeting.
The Australian dollar "has proven bullet-proof, and strong Australian and Chinese PMIs suggest that dip-buying on 'no move' is what everyone wants to do," said Kit Juckes, an analyst at Societe Generale. (Additional reporting by Ian Chua and Reuters FX analyst Krishna Kumar in Sydney, and Masayuki Kitano in Tokyo; Editing by Michael Watson)