By Marc Jones
LONDON (Reuters) - The dollar steadied on Wednesday as investors awaited the outcome of the U.S. Federal Reserve's policy meeting later in the day, while expectations that the European Central Bank would cut interest rates on Thursday capped the euro.
Having enjoyed their best April since 1997, European stock markets were quiet as May got underway with most countries closed for Labour Day holidays. London's FTSE 100 was the exception, climbing 0.2 percent in a thin bout of opening trading.
Closely watched UK purchasing manager index (PMI) data is due at 0828 GMT and is expected to show a small pick up following last week's news that Britain narrowly avoided a triple dip recession in the first quarter of the year.
Wider market attention remained largely on central bank actions though. The Federal Reserve will announce the outcome of its latest meeting at 1800 GMT, while the European Central Bank is expected to cut its interest rates to a new record low of 0.5 percent on Thursday.
The dollar was vulnerable ahead of the Fed statement, hovering at 81.731 as it stayed near the two-month low against a basket of six major currencies it had hit on Tuesday.
At the same time it edged up 0.1 percent against the yen to 97.50, but lacked the momentum needed to challenge the symbolic 100 yen mark it looked to be attacking last month.
The euro, meanwhile, was holding steady ahead of the ECB meeting at $1.3168 against the dollar, but it eased 0.1 percent against the yen at 128.07 yen
"We think meaningful EUR moves will be driven by three fairly unrelated factors, none of which relates to monetary policy in the eurozone," Barclays Capital said in a research note, referring to the effect of a weak yen on Germany's growth, the likely impact from the new Italian coalition government's austerity policies, and a recovery in the U.S. economy.
In Asia, the highlight of the session was China's official purchasing managers' index (PMI) data for April.
Growth in China's manufacturing sector unexpectedly slowed in April to 50.6 from an 11-month high of 50.9 in March as new export orders fell, raising fresh doubts about the strength of the economy after a disappointing first quarter.
The Australian dollar, which is highly sensitive to data from China as the country is Australia's biggest trading partner, hit a session low of $1.0364, Oil fell back below $102 a barrel and copper dropped 0.5 percent to $7,020 a tonne as April's downward pressure continued into May.
"If we are right, the market should further lower growth expectations (for China) and prepare for years of uncomfortable economic policy as the new leadership strives to achieve a relatively painless rebalancing," economists at Societe Generale said in a note to clients.
(Reporting by Marc Jones; Editing by Giles Elgood)
