(Recasts; updates prices, changes byline)
By Lucia Mutikani
NEW YORK, April 29 (Reuters) - The dollar rose to an almost one-month high versus the euro on Tuesday, buoyed by growing views the Federal Reserve is ready to signal a pause in its interest rate cutting-campaign and by weak European economic data.
The U.S. currency was headed for its largest monthly gain in almost a year as the policy-setting Federal Open Market Committee started a regular two-day meeting against the backdrop of swelling inflation pressures.
Analysts expect the FOMC to cut the benchmark lending rate by 25 basis points to 2 percent and indicate a pause for now, after an aggressive exercise that has cut rates by 3 percentage points since mid-September.
"It's essentially the view that we are perhaps at a significant juncture here in terms of monetary policy." said Shaun Osborne, chief currency strategist at TD Securities in Toronto.
"The market thinks it's going for 25 basis points cut and signal a pause in the easing cycle, whereas the expectation appears to be growing that the European Central Bank is closer to a rate cut. That's one of the reasons why euro/dollar is moving the way it is."
The euro dropped to $1.5542 <EUR=>, a four-week trough, according to Reuters data. In late New York trade, it was quoted at $1.5565, down 0.6 percent on the day.
The New York Board of Trade's dollar index was on pace for its best month since November 2005 .DXY, also cheered by perceptions U.S. interest rates are nearing a bottom. It last traded at 72.874, up 0.5 percent on the day.
"That theme is definitely playing out in the market. The Fed has two choices, either they cut 25 (basis points) and they go to a neutral bias, or they don't cut but they keep an easing bias," said Greg Anderson, senior currency strategist at ABN Amro Bank in Chicago.
"I don't think that they can cut and keep an easing bias. I don't think that the hawks will let them do that."
SOFTER EUROPEAN DATA
While markets are expecting a slightly hawkish tone in the FOMC's statement accompanying the rate decision, poor economic data from the euro zone raised doubts on the ECB's ability too maintain its tough stance on inflation and interest rates.
Data on Tuesday showed French consumer confidence fell to its lowest level since 1987, when the data series began.
Other reports indicated Spanish calendar-adjusted retail sales fell a record 5.5 percent in March, and German inflation in April undershot forecasts, with the annual rate slowing sharply, piling pressure on the euro.
Against the yen, the single currency dropped to a session low of 161.11 yen <EURJPY=>. It was last trading at 161.91 yen, down 0.6 percent on the day. The euro also plumbed a four-week low against the pound at 78.31 pence <EURGBP=>, but later rallied to 79.07.
The pound was hurt by a warning from policy-maker David Blanchflower that Britain faced a real risk of recession unless the Bank of England took "aggressive" action.
But expectations the Fed's monetary easing cycle was almost done helped push the U.S. stock market lower, causing the dollar to fall against the yen. The dollar traded down 0.1 percent at 103.93 yen <JPY=>.
Analysts said the euro's slide could be arrested if euro zone inflation data due on Wednesday does not show a moderation as widely expected by the market. Expectations for a Fed pause were a bit overstated, which could hurt the dollar, they said.
"They may well pause, but I don't think the next move in interest rates is going to be up. There are still some significant headwinds for the U.S. economy moving forward," said TD Securities' Osborne. "It's going to be very difficult for the Fed to suggest that they are done easing interest rates for the moment."
Data on Tuesday showed U.S. consumer confidence plunged to a five-year low in April. Gross domestic product data on Wednesday may show the economy shrank in the first quarter and Friday's jobs report is expected to show payrolls fell 80,000 in April, according to a Reuters poll. (Additional reporting by Gertrude Chavez-Dreyfuss; Editing by Leslie Adler)