Dollar weak on outlook for Fed rates

TOKYO, Dec 13 (Reuters) The dollar stayed weak on Wednesday after the Federal Reserve kept rates steady as widely expected and toned down its tightening bias on monetary policy, suggesting that its next move could be to cut rates.

The U.S. currency slipped after the Fed followed up its decision to leave rates at 5.25 percent for the fourth straight meeting by suggesting that ''substantial'' weakness in the housing market was a culprit of the recent slowdown in economic growth.

''Talk of the possibility of a rate rise is fading as inflation pressures subside,'' said a trader at a Japanese bank.

''I think the Fed will start to signal that it is turning more of its attention to the state of the economy.'' A Reuters poll conducted on Tuesday after the Fed released its post-meeting statement showed that 13 out of 18 U.S. primary bond dealers believe that the Fed is done raising rates, and that its next policy action will be to cut them.

In early Tokyo trade, the dollar was little changed at 116.80 yen after slipping 0.2 percent on Tuesday.

The euro was at $1.3280, also little changed but well within range of a 20-month high of $1.3370 touched earlier in December.

The single currency was well supported, given that the Fed's statement comes after the European Central Bank lifted rates to 3.5 percent just last week and is expected to keep raising rates next year, highlighting the dollar's dwindling yield advantage.

Against the Japanese currency, the euro was at 155.05 yen, inching down from a record high of 155.30 yen touched in New York.

The yen was on the back foot against the single currency on tempered expectations that the Bank of Japan will raise rates next week, although traders said that the possibility of a lift had not fizzled out altogether.

With the Fed meeting out of the way, investors turned their attention to the BOJ's tankan quarterly business sentiment poll due on Friday, as a strong reading could rekindle anticipation for a rate rise.

Traders were also awaiting figures on U.S. retail sales for November to glean a better view of just how much economic growth is slowing.

REUTERS DKS PM0607