FOREX-Dollar sits tight ahead of Fed meeting and data; kiwi sags

Reuters

* Dollar index holds near six-month peak, euro eight-month trough

* FOMC, U.S. GDP & payrolls key tests for markets this week

* Euro zone inflation and China PMI also in focus

* Kiwi slips after NZ's Fonterra cuts farmer payout forecast (Updates prices)

By Ian Chua and Masayuki Kitano

SYDNEY/SINGAPORE, July 29 (Reuters) - The dollar held near a six-month peak against a basket of currencies on Tuesday ahead of this week's Federal Reserve policy review, while the kiwi slipped after dairy giant Fonterra cut its forecast payout to farmers.

The New Zealand dollar was down 0.4 percent at $0.8517 and set a low of $0.8512, its weakest level since June 10, after Fonterra Ltd. slashed its forecast payout to its suppliers in the new season by 14 percent.

The New Zealand dollar is sensitive to the fortunes of the dairy sector, which accounts for nearly a third of the country's annual export earnings.

Moves among major currencies were generally subdued, with the greenback holding firm ahead of the Fed's two-day policy meeting that starts on Tuesday, and key data this week such as U.S. gross domestic product and the closely watched non-farm payrolls report.

The dollar index, which measures the greenback's value against a basket of major currencies, held steady at 81.059 . It had risen to 81.084 late last week, its highest level since early February.

The euro eased about 0.1 percent to around $1.3432, pinned near an eight-month trough of $1.3421 set on Friday.

"The euro's fate will all be about the FOMC and then the nonfarm payrolls at the end of the week. I'm looking for a $1.3400 to $1.3470 range until then," said Jeffrey Halley, FX trader for Saxo Capital Markets in Singapore.

In a sign of the increasingly bearish market sentiment toward the euro, data from a U.S. financial watchdog late last week showed that speculators increased their net short position in the euro to 88,823 contracts in the week to July 22, the most bearish positioning against the single currency since late November 2012.

The U.S. economy needs to do well in order for such euro-selling sentiment to persist, said Daisuke Karakama, chief market economist for Mizuho Bank in Tokyo.

"If bets accumulate too much in that direction though, you do have to be wary about the possibility of a sudden reversal," Karakama said.

While the latest data on currency speculators' positioning shows that euro-selling momentum has increased, it can also be seen as a sign that there is now more fuel for a short-covering bounce in the euro, Karakama added.

The dollar held firm versus the yen, edging up 0.1 percent to about 101.99 yen.

Besides the Fed policy meeting and U.S. jobs data, euro zone inflation and PMI surveys for China and the euro zone later this week are also on investors' radar.

The Fed is seen likely to cut its monthly bond-buying programme by another $10 billion as it looks to wind up the scheme later in the year, but the focus for markets is on any clues to the timing of the first interest rate hike.

(Editing by Shri Navaratnam)

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