* Speculation that Fed may curb expectations of rate rise
* Euro rises above $1.40; ECB's 1-year refinancing eyed
* Caution ahead of U.S. record debt auctions (Recasts, adds quotes, updates prices)
By Wanfeng Zhou
NEW YORK, June 23 (Reuters) - The U.S. dollar fell against the euro on Tuesday on speculation the Federal Reserve may lower expectations of an interest rate rise when it concludes its meeting on Wednesday.
The euro jumped more than 1 percent to trade well above $1.40 as financial markets also awaited the auction results of a record $104 billion in U.S. debt issuance this week. A low demand will likely raise concerns about how the country will finance its huge deficits.
The Fed's policy-setting Federal Open Market Committee is scheduled to make its policy announcement on Wednesday. With no move on rates expected, investors will focus on what the Fed says about the economic outlook and its debt-buying program.
"There is (some) concern about the Fed," said David Watt, senior currency strategist at RBC Capital Markets in Toronto. "People are starting to look at whether the Fed is going to indicate that they'll leave rates on hold for an extended period of time."
In midday trading in New York, the euro rose 1.5 percent against the dollar to $1.4063 after hitting a session peak of $1.4067, according to Reuters data.
The market will also be keeping a close eye on the European Central Bank's first-ever one-year refinancing operation on Wednesday, aimed at getting banks lending again.
"Tomorrow's ECB auction will shed important light on the funding needs of euro zone banks and the prospects for monetary policy," CMC Markets' Ashraf Laidi said in a note to clients.
The ICE Futures U.S. dollar index, which tracks the value of the greenback against a basket of major currencies, fell 1.1 percent to 79.972.
The dollar has come under pressure in recent weeks as more upbeat U.S. economic data fueled hopes that a global economic recovery was on track. However, an outlook by the World Bank on Monday stirred worries about global growth, pushing stocks sharply lower and reviving safe-haven flows into the greenback.
Concerns about reserve diversification away from U.S. assets also weighed on the dollar on Tuesday after Moody's said one risk to the United States' AAA rating would be if there is a severe challenge to the dollar as the main reserve currency.
It said the U.S. rating is safe unless the government is unable to bring debt back down.
STABILIZING EQUITIES
An improved tone on Wall Street, the day after the worst one-day loss in two months, encouraged investors to be a little less risk averse earlier in the session.
The dollar has tended to fall when risk sentiment improves as investors move money away from safe-haven investments into riskier ones.
"We have risk appetite back this morning, and the dollar is suffering on the back of that a little bit," said Jacob Oubina, currency strategist at Forex.com in Bedminster, New Jersey.
The dollar also fell against the yen, extending losses after an industry survey showed sales of previously owned homes in the United States rose at a slower-than-expected pace in May. The data pointed to a sluggish recovery from the severe economic recession.
The dollar last traded 0.6 percent lower at 95.28 yen, near a three-week low just below 95 yen, according to electronic trading platform EBS.
Investors were awaiting a U.S. Treasury auction of $40 billion in two-year government debt, with results due just after 1 p.m.
Adding to support for the euro were comments by European Central Bank Governing Council member Axel Weber on Tuesday that he saw no need for further measures at the moment.
The ECB has cut interest rates to a record low 1.0 percent and is lending banks unlimited funds at fixed interest rates to try to get the economy back in shape. It also has plans to buy 60 billion euros in euro-denominated covered bonds, and Weber said this was enough. (Editing by Leslie Adler)