* Dollar index eases, but not far from two-week highs
* Market unwinds USD shorts after no surprises from Fed
* Fed keeps stimulus in place as expected, not too alarmedon growth
* Aussie dollar edges up as Sept building approvals surge
* Kiwi off 6-week low, RBNZ reiterates view for higher rates
By Ian Chua and Masayuki Kitano
SYDNEY/SINGAPORE, Oct 31 (Reuters) - The dollar hovered neara two-week high against a basket of major currencies onThursday, after extending gains when the Federal Reservemollified jumpy markets and kept its massive bond-buyingstimulus in place.
Some investors had been taking profits on very bearishdollar positions leading up to the Oct 29-30 policy meeting.They continued to do so after the Fed's comments suggested itwas less alarmed over the state of the economy than some hadanticipated.
The U.S. central bank said it would keep buying $85 billionin assets per month and sounded only slightly less optimisticabout growth. However, it dropped a phrase expressing concernabout a run-up in borrowing costs, suggesting it was comfortablewith interest rates at their current level. ID:nL1N0IK23W]
"The USD's ability to rally simply on lack of new negativenews from the Fed adds more evidence to suggest that the markethas become uncomfortably short USD," analysts at BNP Paribaswrote in a client note.
The dollar index eased 0.1 percent to 79.704 ,but was not too far from Wednesday's post-Fed peak of 79.905,its highest level since Oct 17.
The dollar index has regained some ground after hitting anine-month trough of 78.998 last Friday, but is down about 0.7percent for this month.
Against the yen, the dollar eased 0.1 percent on the day toabout 98.40 yen, after having touched a two-week high of98.69 yen on Wednesday.
The euro held steady at $1.3735, down fromWednesday's high of $1.3787.
On Wednesday the euro briefly tested chart support around$1.3695, a level representing the 38.2 percent retracement ofits Oct 16-25 rally. Traders said a break there could extend theeuro's fall to major and pivotal support at $1.3645/55.
With the Fed meeting out of the way, traders expect themarket to go back to watching U.S. economic data before decidingon whether to continue unwinding short dollar positions.
The weekly U.S. jobless claims and the Chicago PMI businessbarometer report are due later in the day.
In Asia, the outcome of the Bank of Japan policy meetingwill be in focus, although the BOJ is expected to maintain itsultra-loose monetary policy. It could also lift its long-termeconomic forecasts.
"I think basically they (BOJ) would say that they arecomfortable with the outlook," said Sim Moh Siong, FX strategistfor Bank of Singapore.
"But I think the bigger question is, will they still havethe same level of comfort three to six months down the road.Perhaps then there may be a higher possibility of easing if thesales tax hike does impact on the economy," Sim added.
Japan's sales tax is set to rise to 8 percent in April from5 percent, to cover rising welfare costs.
The Australian dollar rose 0.2 percent to $0.9501,having gained a lift after data showed that Australian buildingapprovals surged 14.4 percent in September, well above marketexpectations for a 2.7 percent increase.
The New Zealand dollar stood at $0.8259, havingpulled away from Wednesday's six-week low of $0.8193 after theReserve Bank of New Zealand reiterated it was likely to hikeinterest rates next year.
Traders said some investors were forced to cover short kiwipositions as they had expected the RBNZ to take a more dovish totone to restrain the local dollar.
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