* Euro down 0.4 pct at $1.3176 EUR=
* Dollar index back above 200-day moving average .DXY
* Markets expect some Fed easing steps but not full QE
* Shirakawa remarks, falling share prices support yen
(Adds quote, updates prices)
By Tamawa Desai
LONDON, Aug 10 (Reuters) - The dollar rose on Tuesday as traders trimmed short positions, awaiting the result of the U.S. Federal Reserve's policy meeting amid speculation of further easing to shore up a flagging U.S. economy.
Market players expect a dovish tone from the Fed but are divided as to how far it would go to back up its words with action. Some see the Fed taking minor steps such as reinvesting funds to maintain its balance sheet, but not going back to full-fledged quantitative easing.
Investors also pared back on perceived riskier currencies after seeing a fall in Asian stocks. European shares were down 0.8 percent by mid-morning trade .FTEU3.
"We're seeing some squaring up of short positions ahead of the Fed, and there is some risk-off sentiment as well as Asian stocks closed lower, prompting a selloff in high yielders such as the Australian dollar," said Christian Lawrence, currency strategist at RBC Capital Markets.
By 0908 GMT, the euro had fallen 0.4 percent from late U.S. trade on Monday to $1.3176 EUR=, pulling away from a three-month peak of $1.3334 hit on Friday on trading platform EBS.
The euro's decline accelerated after falling below trendline support on hourly charts near $1.3200, with stop-loss orders also adding to the drop.
Traders also said the dollar index .DXY had recovered after breaking below its 200-day moving average, which was around 80.835 on Tuesday, indicating a decreased selling signal.
Steps by the Fed could range from a pledge to consider more quantitative easing, reinvesting money from maturing debt into Treasuries or mortgage-based securities, cutting interest paid on excess reserves, and buying financial assets outright. [ID:nN09301078].
Its decision is due around 1815 GMT.
YEN EDGES UP
The yen was the exception to the dollar's broad rebound as it edged up against the greenback. Traders in Tokyo cited talk of fund repatriation by Japanese investors related to coupon payments of U.S. Treasuries due in mid-August.
The dollar dipped to the day's lows against the yen around 85.65 yen after BOJ Governor Masaaki Shirakawa said no major central bank targets currency levels. He also said the central bank's board spent much time debating the recent rise in the yen and how it could affect business sentiment. [ID:nTKU106184]
The Bank of Japan kept interest rates steady at 0.1 percent and held off on new policy steps, as expected. [ID:nTKU106183]
"The recent rise in the yen has more to do with a fall in the dollar rather than yen strength," said Akitsugu Bandou, senior economist at Okasan Securities in Tokyo. "Unless the factors behind the dollar's fall are resolved, there will probably be little impact even if the BOJ makes some efforts."
The dollar was last down 0.2 percent at 85.70 yen JPY=, holding above last Friday's eight-month low of 85.02 yen.
Market players said there were substantial stop-loss orders just under options barriers at 85 yen, with more stops sitting below 84.82 yen. A fall below 84.82 yen would take the dollar to a 15-year low against the yen.
Japanese Finance Minister Yoshihiko Noda did not comment on intervention and repeated recent market moves were somewhat one-sided. [ID:nTKX006929]
The Australian AUD= and New Zealand NZD= dollars were hurt by sluggish Chinese import figures [ID:nTOE67903G]. (Editing by Mike Peacock)