* Yen rallies, dollar index inches higher as stocks slide
* Aussie down as CPI dents expectations of bigger rate hike
* Norges Bank expected to raise rates
(Recasts, updates prices, adds quotes and comment)
By Jamie McGeever
LONDON, Oct 28 (Reuters) - The yen strengthened across the board and the U.S. dollar inched higher on Wednesday as global shares deepened their slide, prompting currency traders to trim positions and reduce risk exposure.
A slide in European shares, led by declines in the banking and energy sectors, accelerated the high-yielding Australian dollar's sharp fall triggered by lower-than-expected domestic inflation data, while boosting the low-yielding yen.
Australian consumer price inflation was generally in line with forecasts but not strong enough to justify expectations for an aggressive interest rate increase next week, which pushed the Australian dollar to a two-week low.
This followed surprisingly weak U.S. consumer confidence figures on Tuesday.
Benchmark European shares fell 1.8 percent to a three-week low, with banking shares significantly underperforming to hit a near two-month low as Irish banks slid sharply.
"Equity markets are going to struggle for a period. There are certainly question marks to be posed about the ability to maintain momentum when more central banks are gradually moving toward exit strategy mode," said Derek Halpenny, senior currency economist at BTM-UFJ in London.
"The data's not compelling any more in terms of confirming strong recovery," he said.
Weaker shares prompted traders to buy the yen, which tends to benefit when markets shun riskier trades.
By 1127 GMT, the dollar had fallen as much as around 1 percent on the day to 90.93 yen, retreating from a one-month high of 92.33 yen hit on EBS the previous day.
The euro fell 1.1 percent to a two-week low around 134.35 yen, pulling back from a more than two-month high of 138.49 yen hit on Monday.
The Australian and New Zealand dollars each tumbled nearly 2.5 percent versus the Japanese currency.
"The market was badly caught short on cross/yen earlier in the month and bought them all back," said a trader based in London, referring to a sustained rally earlier this month in the euro, and also the Australian and New Zealand dollars, which hit their highest in a year against the yen last week.
"Those positions got overbought, so now we're heading back towards levels in the middle of the rally."
The euro fell 0.3 percent to a two-week low of $1.4757, retreating from a 14-month high of $1.5064 on Monday, while the dollar index, a gauge of its performance against six major currencies hit a two-week high of 76.386.
NORWAY TO RAISE RATES?
The Australian dollar was down 1.5 percent on the day at $0.9030, and overnight interest rate swaps markets showed investors now looking for no more than a 25 basis point rate rise at the Reserve bank of Australia's meeting next week.
"We've had an almost uninterrupted increase in the Aussie dollar since the end of June, and an acceleration of that move in October, so there's bound to be a lot of profit-taking," said Johan Javeus, strategist at SEB in Stockholm.
Attention in Europe turns to Norway, with Norges Bank expected to become the first European central bank to raise interest rates since the global financial and economic crisis.
A 25 basis point rise to 1.5 percent is so widely anticipated that traders sold the Norwegian crown against the euro on Wednesday, cashing in on its sharp rise to a 14-month high earlier this month.
"... the relevant question is whether or not the tone will turn significantly more hawkish, suggesting an acceleration of the tightening cycle. We don't think this will be the case," said Societe Generale strategists in a note to clients.
Data on Wednesday showed Norway's unemployment rate rose a bit more than expected in August, pushing the euro to a three-week high of 8.46 crowns. Earlier this month it fell below 8.25 crowns for the first time since August 2008. (Additional reporting by Naomi Tajitsu; Editing by Victoria Main)