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FOREX-Dollar supported in cautious trade ahead of ECB

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* Dollar, euro flat as traders await Thursday ECB meeting

* Rate cuts expected, decision a harbinger for Fed, BoJ

 

* Tepid risk-on mood holds as bonds and yen sold

SINGAPORE, Sept 11 (Reuters) - The dollar steadied on Wednesday as investors appetite for risk showed cautious improvement and the yen weakened in the shift away from safe havens, but currencies kept to tight ranges ahead of a series of major central bank meetings over the next week.

Investor focus for now is centered on the European Central Bank's meeting on Thursday. Expectations it will push interest rates even further into negative territory have weighed on the euro, which has shed 3% since June.

The single currency edged higher to $1.1050, with bets divided on the likely scope and style of any stimulus.

"Nobody really wants to commit yet," said Matt Simpson, senior market analyst at Gain Capital in Singapore.

 

"We've had the trade-war boost last week, it's filtered through this week, and so markets are taking a bit of a breather," he said. "Now it's in that little in-between stage - what's going to keep to keep that value going?"

The ECB decision is likely to set the tone for upcoming rate-setting decisions by the U.S. Federal Reserve and the Bank of Japan next week, and for the broader global risk appetite.

Since being fired by news last week that a new round of U.S.-China trade talks were scheduled for next month, the risk-on sentiment has begun to fade.

But there was still enough optimism left for Asian equities to move higher, and for U.S. bond yields to hold near a one-month high, while the retreat from safe havens saw the yen ease to 107.77 per dollar, its weakest since Aug. 1.

The pound stood at $1.2356, near its six-week high of $1.2385 hit earlier in the week on the reduced chances for Britain to crash out of the European Union without a divorce deal.

The Chinese yuan and Australian dollar briefly jumped after the editor of Commmunist Party newspaper The Global Times tweeted that China would introduce measures to mitigate the trade-war impact.

Overhanging the buying of riskier currencies, however, are signs of a slowdown in global demand.

ECB policymakers are leaning toward a revival package that includes a rate cut, a pledge to keep rates low for longer and compensation for banks over the side-effects of negative rates, five sources familiar with the discussion said last week.

Germany also signaled its readiness for relaxing its staunch opposition to deficit spending to support the economy.

On the other hand, concerns have been building that global central banks are reaching the limits of their stimulus options, especially those with negative interest rates and sub-zero long-term sovereign bond yields.

"It remains to be seen whether the incoming policy stimulus by the ECB will be enough to offset the headwinds faced by the bloc," said Han Tan, a market analyst at brokerage FXTM.

"Should the ECB not live up to markets' dovish expectations this week, that may allow the euro to post some immediate gains," he said in a note.

"The ECB's policy decision and conveyed outlook may also prompt immediate moves in the dollar, considering that the Euro accounts for more than half of the dollar index."

The dollar index was steady at 98.332.

Much of the broader positive mood in recent days has been driven by optimism that a high-level meeting of U.S. and Chinese negotiators at Washington next month can deliver some sort of trade-war circuit breaker.

That was tamped down somewhat by White House trade advisor Peter Navarro on Tuesday, when he urged patience about resolving the two-year trade dispute between the world's two largest economies and said to "let the process take its course."

The prospect of a breakthrough has stoked appetite for Asian currencies such as the trade-exposed South Korean won, which drifted higher to 1193.35 per dollar, close to its highest since Aug. 2. (Reporting by Tom Westbrook; Editing by Simon Cameron-Moore)

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