* US dollar index falls to lowest level in six months
* Dollar lowest since Japan intervened last week
* Euro at 5-month high versus dollar
* Next euro target around $1.3465 - technical analysts (Updates prices, adds detail)
By Steven C. Johnson
NEW YORK, Sept 22 (Reuters) - The U.S. dollar slid to a five-month trough against the euro on Wednesday and saw its lowest level against the yen since Japan's intervention last week as markets braced for more monetary easing from the Federal Reserve.
The Fed said on Tuesday it was prepared to start pumping billions of new dollars into the economy, likely via purchases of Treasury bonds, to boost growth if necessary. That would further depress U.S. debt yields, which are already at record lows in some maturities, and weaken demand for U.S. assets.
Dealers reacted by pushing the euro above $1.34 for the first time since April and sent an index of the dollar against six major currencies <.DXY> to a six-month low.
Gains in the euro
The Fed "is worried about deflation, which could bring forward more quantitative easing," said Andrew Wilkinson, chief analyst at Interactive Brokers' Group. "People don't like that prospect, so the market is punishing the dollar."
Traders were wary of pushing the dollar too low against the yen for fear it could trigger another round of intervention by Japanese authorities who surprised the market last week by selling yen in the market for the first time in six years.
"Sellers will have to be very nimble as intervention risks are very high," said Paul Mackel, director of currency strategy at HSBC Markets. "We would expect the Japanese to intervene once the price action gets too one-sided."
The dollar was last down 0.7 percent at 84.52
Traders said Japan may step in between 83 and 85 yen and said authorities had called banks to ask if they will be staffed on Thursday, a Japanese national holiday, in an apparent attempt to keep traders cautious over intervention.
"I think they will intervene if the dollar falls to 84 yen or below," said Tom Levinson, FX strategist at ING. "Dollar/yen is pretty sensitive to the fall in U.S. yields, so it looks like pressure will be back on the Japanese authorities."
Prime Minister Naoto Kan kept investors nervous by telling the Financial Times that intervention would be "unavoidable" if there were drastic changes in the currency. [ID:nLDE68K2AL]
But David Gilmore, principal of FX Analytics, said the odds of intervention before Kan meets with U.S. President Barack Obama this week in New York are "virtually zero regardless of the level or pace of decline."
EURO APPEAL GROWS
The euro was sharply higher for a second straight day,
rising as high as $1.3440 before retreating to $1.3394
After closing above its 200-day moving average on Tuesday, technical analysts said the next target was around $1.3465, the 38.2 percent retracement from a 2008 high of $1.6038, to June's low of $1.1875.
The dollar also hit a 2-1/2-year low of 0.9837 Swiss francs
Steven Englander, who heads Citigroup's global G10 currency strategy, said there are several reasons to buy the euro, one of which being that the market "is at best neutral euros and very probably still short."
Wilkinson added that investors seem genuinely more relaxed about the euro zone outlook and the debt levels of some troubled countries, as evidenced by solid bond auctions in Ireland, Greece and elsewhere. (Additional reporting by Vivianne Rodrigues in New York and Anirban Nag in London; Editing by )