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FOREX-Dovish Fed pins dollar at two-week lows

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* Dollar index dips to 2-week low

* European trade subdued by holiday in London

* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E

By Dhara Ranasinghe

LONDON, Aug 30 (Reuters) - The dollar steadied near two-week lows on Monday, held back by the message from the U.S. Federal Reserve chief that there is no hurry to dial back massive stimulus.

The allure of the greenback has taken a knock since Friday when Fed Chair Jerome Powell said that tapering could begin this year, but added that the central bank would remain cautious.

Investors have responded by pushing the dollar index, which measures the currency's value against major rivals, down. It hit a fresh two-week low at 92.595 before steadying around 92.66, still a touch lower on the day.

The euro was trading at $1.1804, steady on the day but close to a three-week high touched in Asian trade at $1.1810.

Japan's yen rose to its strongest since last Wednesday at 109.70 per dollar.

Overall trade in Europe was subdued due to a holiday in Britain.

"We avoided a hawkish surprise at Jackson Hole," said Vasileios Gkionakis, global head of FX strategy at Lombard Odier Group.

"Very short term, there could be more downside pressure on the dollar, but what really matters is the economic data going forward."

For the month the dollar index has gained about 0.6%. The New Zealand dollar and Norwegian crown have led G10 moves against the dollar, rising 0.5% and 1.4% respectively, with New Zealand and Norway expected to begin rate hikes within weeks.

Norway's crown strengthened to a seven-week peak against the dollar on Monday, last trading at 8.6855 crowns per dollar .

Norges Bank plans a September hike, while swaps markets are pricing an 80% chance that the Reserve Bank of New Zealand will move in October after a COVID outbreak delayed an August move.

New Zealand on Monday extended a lockdown of its largest city, Auckland, by two weeks.

Purchasers' Managing Index figures in China and the United States through the week, as well as European inflation data, will meanwhile update the picture of the global economy as it faces headwinds from steadily climbing virus cases.

The closely watched U.S. non-farm payrolls report out on Friday is a key focus for markets and especially the timeline for potential Fed tapering.

The median forecast of 40 analysts polled by Reuters is for an increase of 728,000 jobs created in August, though as with previous months, the range of predictions is large and stretches from 375,000 to a million.

"Together with Covid trends, Friday's U.S. non-farm payrolls will make or break the case for announcing tapering at the FOMC's 22 September meeting," analysts at CBA said in a note.

"We consider another 800,000 jobs should be enough to announce tapering."

(Reporting by Dhara Ranasinghe; Additional reporting by Tom Westbrook in Singapore; Editing by Jan Harvey)