* Dlr attempts poise after biggest 1-day slide since 1985
* Fed stuns markets; decides to buy long-term Treasuries
* Profit-taking tempers dollar's losses for now
* Euro/dlr hits 2-month high, sterling/dlr 3-week high
(Changes byline, updates quotes, prices)
By Kirsten Donovan
LONDON, March 19 (Reuters) - The dollar attempted to recover its poise on Thursday after its biggest one-day loss since at least 1985 as the Federal Reserve stunned investors by saying it would buy long-term debt in an effective printing of money.
The Fed will purchase $300 billion of long-dated Treasuries over the next six months, its first large-scale purchases of government debt since the early 1960s, while also boosting buying of mortgage-backed securities and agency debt in its bid to rescue the economy.
The move raised concerns that a sharp expansion of the Fed's balance sheet -- which has already doubled in size in the past six months -- would lead to oversupply of the world's main reserve currency.
"It's all part of a global process of easing which is positive for risk assets in the short-term," said Nick Parsons, head of markets strategy at National Australia Bank.
"The one factor supporting the dollar over the last three months has been the woeful performance of equity markets and if this sees a lift in risk appetite ... that is absolutely, unequivocally negative for the dollar."
The dollar's cachet as a refuge from risk also melted as stock markets cheered the Fed's attempt to resuscitate lending. The vix "fear gauge" of equity market volatility fell to its lowest since late January on Wednesday.
U.S. Treasuries surged, causing the biggest one-day drop in 10-year yields since the 1987 stock market crash, compounding the dollar's woes.
The dollar index, a gauge of its performance against a basket of major currencies, slipped 0.1 percent to 84.087 after a 3 percent slide on Wednesday -- its biggest one-day drop in at least a quarter of a century.
The euro edged lower against the dollar as investors booked profits after it jumped 3.8 percent on Wednesday for its biggest one-day rise since its launch in 1999, according to Reuters data. The single currency hit a two-month high of $1.3536 on trading platform EBS early in the global session. It was last down 0.1 percent at $1.3487.
Sterling reversed earlier losses and rose to a three-week high at $1.4349, while against the yen, the dollar was 0.3 percent lower at 95.57 yen after falling almost 3 percent on Wednesday.
FURTHER DOLLAR WEAKNESS?
ING strategists said the euro would be a major beneficiary of the Fed's 'shock and awe' policy, adding that new dollar supply and debt monetisation meant a run-up to the $1.40 area could be on the cards even though the single currency bloc faces its own problems.
Daily technical charts show the euro now faces resistance at $1.3635. Above that lies the 200-day moving average near $1.3900.
But it's not just the euro which is likely to benefit.
"Apart from being negative for the dollar, we expect yesterday's events to be bullish for commodity currencies such as the Australian dollar, Norwegian crown and Canadian dollar, and currencies of countries less likely, for whatever reasons, to engage in the monetisation of government debt such as the euro," Barclays Capital strategists said in a note.
The Fed is not alone in conducting large-scale buying of government debt. The Bank of England is buying 75 billion sterling of gilts and the Bank of Japan on Wednesday announced it would increase its purchases of Japanese government debt.
The Swiss National Bank last week shocked investors by combining a rate cut with FX and bond market intervention to keep interest rates low.
The European Central Bank has mulled non-standard policy measures after cutting interest rates to a record low 1.5 percent in March. But many don't expect to see quantitative easing implemented soon and it remains unclear how the ECB would set about such a policy with so many different European countries issuing bonds.
(Reporting by Kirsten Donovan; Editing by Ruth Pitchford)