FOREX-U.S. dollar gains on private payrolls, FOMC looms

* U.S. private payrolls report helps dollar

* FOMC in focus; open-ended approach key to dollar outlook

* Dollar/yen trades above 81 yen (Recasts, adds comment, U.S. data, updates prices, changes byline, dateline; previous LONDON)

By Gertrude Chavez-Dreyfuss

NEW YORK, Nov 3 (Reuters) - The dollar rose on Wednesday, boosted by better-than-forecast U.S. private payrolls data, but trading was confined to narrow ranges as markets awaited a Federal Reserve decision to further ease monetary policy.

The expected Fed announcement may push Treasury debt yields lower and diminish the appeal of some U.S. assets, although analysts said the decision has been pretty much priced into the market the last few sessions.

"I don't think many people would want to make waves ahead of the Fed announcement this afternoon," said Ron Simpson, director of currency research at Action Economics in Tampa, Florida.

"For the most part, some form of quantitative easing has been priced in by the market. In my mind, the risk after the announcement for the dollar is to the upside only because the the dollar has been sold so much against most currencies."

Markets were generally priced for the Fed initially to commit to buying at least $500 billion in Treasuries over five months in a fresh bout of quantitative easing, but traders were eager for details of the scope and pace of bond purchases.

Ahead of the Federal Open Market Committee statement, traders said option expiries are expected to dictate price action.

In early morning trading, the euro was slightly lower at $1.4016, held in a $1.4000-50 range for much of the session. Option expiries at $1.4000 and $1.4050 later in the day were seen influencing intraday price action.

The dollar rose 0.7 percent against the yen to 81.13 , within striking distance of this week's 15-year low of 80.21, according to electronic trading platform EBS. The all-time low of 79.95 yen was also in focus as the market stayed sensitive to the potential for fresh Japanese intervention to stem the yen's rise.

Gains in dollar/yen were helped by U.S. data showing private sector payrolls rose 43,000 last month, with September's figures revised upward. For the report click on [ID:nEAP10330].

Sterling hit a nine-month high of $1.6157 after stronger-than-expected UK services sector activity data added to the view that the Bank of England may not implement more QE any time soon. [ID:nLDE6A20TQ] Sterling last traded up 0.3 percent at $1.6096.

Traders also said liquidity had dried up since the start of the week, with one trader in London saying his turnover in the past two days had been the lowest in five years.

He added the market was expecting the Fed announcement to offer more clarity on whether the dollar's latest sell-off since September would continue through the end of 2010.

"Irrespective of recent ratcheting down of Fed QE2 expectations from $1 trillion to $500 billion, a likely open-ended approach (of say $100 billion per month) should in our view keep (the dollar) on a depreciation path," said Tom Levinson, currency strategist at ING in a note to clients.

"An absence of BOJ asset purchases of a similar scale together with USD/JPY's strong correlation with U.S. Treasury yields will keep the former biased lower."

Multimedia report on run-up to the Fed meeting:

http://link.reuters.com/pyb23q

Top News-U.S. elections: http://link.reuters.com/fyq86p

The widely expected outcome of U.S. midterm elections -- where the Republicans took control of the House of Representatives while the Democrats were set to hang on to the Senate -- also offered some support. [ID:nN03266983]

In other currencies, the Australian dollar slipped 0.3 percent at US$0.9968, retreating from a 28-year high above parity after weak building sector data took some of the shine off the currency. The Aussie had rallied on Tuesday after the Australian central bank raised interest rates. (Additional reporting by Neal Armstrong in London; Editing by James Dalgleish)