* Dollar drifts off nine-month trough versus currency basket
* Move seen driven by position adjustment
* Fed expected to maintain massive stimulus programme
* RBA governor has another go at talking down the AUD
By Ian Chua and Masayuki Kitano
SYDNEY/SINGAPORE, Oct 29 (Reuters) - The dollar inched up onTuesday, but stayed near a nine-month trough as investors betthe Federal Reserve this week will set the course for itsmassive stimulus programme to be maintained into early nextyear.
The dollar index edged up slightly to 79.388.However, it remained not far off Friday's 78.998 - a low thathadn't been seen since Feb. 1.
A break there could pave the way for a test of this year'strough of 78.918 and then the September 2012 low of 78.601.
Traders said the market lacked conviction and moves weredriven more by flows and position adjustments ahead of the Fedpolicy meeting on Tuesday and Wednesday than by fundamentals.
Indeed, investors would probably have sold the dollar ifthey went only by the latest string of data, which suggested aflagging U.S. economy.
Figures on Tuesday showed U.S. manufacturing output barelyrose in September and contracts to buy previously-owned homesrecorded their largest drop in nearly 3-1/2 years.
"The dollar's ability to gain against this backdrop likelyreflects positioning, with USD shorts having built up quickly inOctober according to our metrics," analysts at BNP Paribas wrotein a client note.
That has left the dollar increasingly less vulnerable tonegative news and with more scope to rally if data begins tobeat expectations again, they added.
Traders also said it is unlikely the dollar would react toonegatively should the Fed choose to wait for more evidence ofhow badly Washington's budget battle hurt the U.S. economybefore deciding on whether to reduce stimulus.
The dollar index has fallen about 1 percent this month,adding to a 2.3 percent slide in September.
One of the key beneficiaries of the dollar's decline hasbeen the euro, which as recently as Friday hit its highest sinceNovember 2011 at $1.3833.
The euro slipped 0.1 percent to $1.3778. Traders see chartresistance around $1.3800/70 with a convincing break theresetting the scene for a retest of the October 2011 peak of$1.4248.
Sterling touched its lowest level in nearly two weeks due tostop-loss selling, traders said.
The pound eased 0.3 percent to $1.6089. It fell to $1.6063 earlier on Tuesday, its lowest level since Oct. 17.
Against the yen, the dollar eased 0.1 percent to 97.55 yen , but stayed above a two-week low of 96.94 yen set onFriday.
The U.S. jobs data for October, due on Nov. 8, may be abigger key for the dollar's near-term outlook than this week'sFed meeting, said a trader for a European bank in Tokyo.
"If the jobs data is weak and leads to reneweddollar-selling, the dollar could drop to levels below 96.50yen," the trader said.
The Australian dollar retreated after the head ofAustralia's central bank again tried to talk down the currency.
Reserve Bank of Australia Governor Glenn Stevens said it waslikely the Aussie dollar would fall materially in the futuregiven the country's declining terms of trade, a shift that wouldbe welcomed by the country's exporters.
The Australian dollar fell 0.6 percent to $0.9519.Last Wednesday, the Aussie hit $0.9758, its highest level sinceearly June.
- Budget, Tax & Economy