Dollar drifts sideways before Fed decision

TOKYO, May 9 (Reuters) The dollar drifted sideways against major currencies on Wednesday as market players looked to see whether the Federal Reserve would signal concern about weaker U.S. growth that could be a precursor to an interest rate cut.

The Fed is widely expected to keep rates on hold at 5.25 percent, and many analysts believe the central bank will emphasise in its post-meeting statement that worries about inflation pressures outweigh the economy's housing-led slowdown.

Weaker growth in the United States has stirred expectations that the Fed's next move will be to cut rates even as robust conditions elsewhere in the world have kept other major central banks on track to raise rates, luring funds to those currencies.

Some analysts said the U.S. currency's broad slide to a 26-year low against sterling and a 22-year trough against the high-yielding New Zealand dollar may be starting to peter out.

''The waning momentum in dollar depreciation ... raises the possibility that dollar weakness might be reaching a saturation point,'' said currency strategists at Morgan Stanley in a note to clients.

The dollar changed hands at 119.95 yen little changed from late New York trade.

The euro was flat at $1.3540 holding off the lifetime high of $1.3683 struck in late April. Against the yen, the single currency dipped slightly to 162.40 yen from near 162.55 yen.

The euro slid broadly on Tuesday, pulling back from near a record high against the dollar struck in late April, as investors took profits on the single currency's gains this year before a European Central Bank policy meeting on Thursday.

The ECB is widely expected to suggest that a rate increase to 3.75 percent from the current 3.5 percent is coming in June, while the Bank of England is seen as almost certain to lift rates to 5.5 percent from 5.25 percent.

Sterling barely budged near $1.9895 holding below the 26-year peak of $2.0134 struck on April 18.

Reuters JK SBA VP0550