* Lower U.S. Treasury yields narrow spreads
* U.S. currency pauses from recent short-covering rally
* Investors batten down for next week's Fed meet
(Adds comment, updates throughout; previous TOKYO)
LONDON, Oct 28 (Reuters) - The dollar slipped on Thursday, relinquishing some of the gains made earlier this week as U.S. Treasury yields pulled back from a recent rise as investors continued to recalibrate expectations for U.S. monetary easing.
Traders said dollar selling by reserve managers against the euro and other currencies was also helping to push the U.S. currency down broadly.
Lower U.S. government bond yields on Thursday narrowed the spread between the 10-year euro zone and U.S. benchmarks, putting the brakes on a widening seen in the past week which had helped to prompt a short-covering rally in the greenback.
Analysts said rate differentials have been a big driver of the dollar's move this week, as investors batten down ahead of the Fed's policy meeting on Nov. 2-3.
"Interest rate differentials had stopped moving against the dollar, but today the dollar is giving up a bit of those gains," said Marcus Hettinger, global currency strategist at Credit Suisse in Zurich.
"We're seeing some consolidation in the dollar before the Fed meeting as no one knows how much QE the Fed might do."
The dollar's fate has been closely correlated with U.S. yields and their gap with rates on other currencies, as increases in U.S. yields -- other things being equal -- tend to help the greenback by making dollar investments more attractive.
A widening in some U.S. yield spreads against other currencies had been driven by rising Treasury yields as speculation the Fed may buy more assets to stimulate the economy has turned into a guessing game of how much they may purchase.
By 0752 GMT, the euro had risen 0.4 percent on the day to $1.3815, having climbed to a session high around $1.3850 in early European trade. This helped to push the dollar 0.4 percent lower versus a currency basket.
The euro held above a one-week low around $1.3730 hit on Wednesday, and many analysts say the continuing gap between euro zone and U.S. two-year yields means the euro is unlikely to fall below $1.35 in the coming months.
"(The) Fed will confirm that medium-term deflation risks still justify easing, and with 10-year rates now above Jackson Hole levels, the resulting rally in bonds should soften the dollar again," JPMorgan analyst Justin Kariya said in a note.
A Reuters poll showed Wall Street analysts expect the Federal Reserve to buy between $80 billion and $100 billion worth of assets per month under a new programme widely expected to be unveiled on Nov. 3.
DOLLAR/YEN SLIDES
The dollar fell half a percent to the day's trough of 81.23 yen. The Japanese currency showed little reaction to the Bank of Japan's decision to hold interest rates virtually at zero while holding off from new policy initiatives on Thursday.
Japan's central bank also said it would bring forward its next policy meeting to Nov. 4-5 from Nov. 15-16.
The dollar faces strong resistance at 82 yen, which has blocked its advance several times in recent weeks. Its 21-day moving average was also at 82 yen on Thursday.
Except for a short period after Japan intervened in currency markets on Sept. 15, the dollar has been mostly stuck below the 21-day average line since its decline in June, and a rise above 82 yen could ignite more buybacks in the dollar.
The New Zealand dollar rose 0.5 percent, brushing aside a Reserve Bank of New Zealand decision to hold rates steady at 3 percent as investors took comfort from the central bank's remarks that rates would still head higher at some point.
(Additional reporting by Tokyo Forex Team; Editing by John Stonestreet)