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Written by: Staff
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TOKYO, May 10 (Reuters) The dollar was in striking distance of an eight-month low against the yen on Wednesday ahead of a Federal Reserve meeting that many in the market expect will signal an end to a two-year stretch of rising interest rates.

While the Fed is widely expected to bump up the overnight funds rate by 25 basis points to 5 percent at Wednesday's meeting, marking the 16th straight rise, traders were keen to see whether it will indicate a pause in its tightening cycle.

Many traders and analysts forecast the expected lift in rates will be the last consecutive rise, but some say that factors like soaring oil prices could keep the central bank on alert for inflation pressures in coming months.

''The Fed is more likely to take on a slightly hawkish stance, rather than a neutral or dovish one, which could provide some short-term support for the dollar,'' said Takehiko Jimbo, forex manager at Mitsubishi UFJ Trust and Banking.

In early Tokyo trade, the dollar was at 111.15 yen, up slightly from the level in late U.S. trade on Tuesday, when it slipped to 110.88 yen -- its lowest since September.

Traders said that position squaring ahead of the Fed meeting could prod the dollar to the mid-111 yen region, taking the steam out of the U.S. currency's 6 percent fall in the past month.

The euro was little changed at $1.2755, just below the one-year high of $1.2788 struck earlier in the week.

Broad dollar weakness was also reflected against the Canadian dollar, which traded at C$1.1004 after climbing more than 1 percent to a 28-year high of C$1.0974 on Tuesday.

The market was also awaiting a U.S. Treasury report on currency practices of the United States' trading partners due at 2000 GMT, with particular interest in whether China would be singled out as a currency manipulator.

Some traders said that Washington could stop short of naming China in its report, partly due to efforts to curb Iran's nuclear ambitions, in which Beijing is seen as a key negotiator with Tehran.

Earlier this week, a Treasury official said that the department was convinced China is increasing currency flexibility, although it would like to see Beijing do this more quickly.

REUTERS PDS VP0714

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