* Dollar retreats from 2-1/2-month high ahead of Fed
* Euro holds above $1.45 support
* U.S. consumer price data shows modest rise in November
* Markets watching for any mention of Fed policy exit
(Recasts, updates prices)
NEW YORK, Dec 16 (Reuters) - The U.S. dollar slipped on Wednesday ahead of a Federal Reserve meeting and after data showing tame inflation last month suggested the U.S. central bank need not rush to lift interest rates from record lows.
That helped the euro bounce off a 2-1/2-month low hit one day ago, with traders buying the currency after it failed to break below $1.45. For more on the U.S. data, see [ID:nLDE5BF1RP].
Most analysts expect the Fed to stick to its pledge to keep interest rates near zero for an "extended period" when it issues a post-meeting statement on Wednesday around 2:15 p.m., (1915 GMT) suggesting no rate hike until well into next year.
A run of strong U.S. data lately raised speculation the Fed could hike rates sooner than expected, a move that would boost the value of dollar-based assets.
"I don't think the Fed will want to say too much that rocks the boat at this time of the year," said Firas Askari, head of FX trading at BMO Capital Markets in Toronto. "The recent dollar bounce on strong U.S. data is interesting and perhaps means markets are taking a longer view, but I don't think rates are going to be touched until next summer."
The euro
Concern about some parts of the euro zone banking sector and sovereign credit-worthiness this week may have overshot, aiding the euro's rebound back toward $1.46, said Michael Hart, strategist at Citigroup in London.
An illustration was the muted market reaction to Standard & Poor's cutting Greece's credit ratings by one notch on Wednesday, saying a further downgrade is possible if the government fails to gain political support for a fiscal consolidation program. [ID:nWNA0333]
The euro's failure to test key support around $1.4480 prompted Citigroup strategists to take profits on short euro trades, the bank said in a research note. It added that higher gold and oil prices should spark short-term dollar weakness.
The euro showed limited reaction to the European Central Bank's final one-year liquidity operation at which banks borrowed 97 billion euros.
AUSSIE DOWN, STERLING RALLIES
The dollar index, a non-traded calculation of the dollar's
performance against a basket of six currencies, was down 0.2
percent at 76.811 <.DXY>, slipping from the 2 1/2-month high
the previous day. Against the yen, it was last up 0.1 percent
at 89.73 yen
The dollar has lost more than 5 percent against the basket of currencies this year on the view that other central banks will raise rates before the Fed does.
The Australian dollar
Australia lifted its cash rate 75 basis points in just 3 months but investors are now anticipating a pause at the February RBA meeting which some analysts suggest may even signal an end to the current tightening cycle.
Sterling rallied after a surprisingly strong UK employment
report suggested the British economy was on the mend. The pound
was up 0.4 percent at $1.6345
Norway's crown hit a three-week high against the euro
The Fed, meanwhile, "is likely to tweak the statement to note that conditions in financial markets have improved modestly since the last meeting," Barclays analysts said in a note. "But the broader message should remain that the Fed does not expect to change its policy stance soon." (Reporting by Jamie McGeever and Naomi Tajitsu in London and Nick Olivari and Steven C Johnson in New York; Editing by Kenneth Barry)