* Dollar index falls to 8-1/2 mth low, support at 77.60
* Euro firm, eyes resistace at $1.3895
* Dollar struggles near 83 yen, market wary of intervention
(Updates prices, adds quote, graphics)
By Anirban Nag
LONDON, Oct 6 (Reuters) - The dollar fell on Wednesday to an 8-1/2 month low against a basket of currencies and edged towards a 15-year trough versus the yen, hurt by expectations the U.S. Federal Reserve will further ease monetary policy.
Comments by Chicago Fed President Charles Evans, who was quoted as saying the central bank should do much more to spur the economy [ID:nN05203033], boosted speculation the Fed will resume quantitative easing, possibly at its November policy meeting.
The dollar index =USD .DXY was down 0.13 percent, having fallen as far as 77.60, its lowest since January 20.
The dollar was hovering above September's 15-year low of 82.87 yen JPY=, supported by wariness that Japanese authorities could step in again if it retested that level, after last month's yen-selling intervention.
Analysts said the dollar was likely to remain weak, with the market apparently dividing currencies into two groups of QE and non-QE. The yen, dollar and sterling were in the first group and the euro the most prominent in the second.
The dollar's steady drop prompted talk of an escalating global currency war ahead of the IMF-G7 meetings this weekend, with emerging countries growing increasingly edgy about the flood of capital inflows from advanced economies.
"Given all the talk of more QE by the Fed, the trend for the dollar index is lower and it can fall another 3-4 percent from these levels," said Neil Mellor, currency strategist at Bank of New York Mellon.
"So with the dollar heading lower we will see the rhetoric about global currency wars and intervention escalating. The flows data that we are seeing suggest massive amounts of funds are moving to emerging countries in search of higher yields." <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Graphic showing trade weighted currencies since 2007
Currency tensions rise interactive map
Reuters Insider interview with French FinMin Lagarde
link.reuters.com/geg27p ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> Indeed, the growing risk appetite encouraged by expectations of more funds being pumped in, helped stocks and commodities. With these expectations pressuring two leading reserve currencies, gold XAU= hit a record $1,349.80 on Tuesday. Silver XAG= hit a 30-year high of $23.06.
The euro also benefited and was up 0.2 percent at $1.3858 EUR=, having hit an eight-month high of $1.3874 earlier. On the charts its next target is $1.3895, a 61.8 percent retracement of its fall from above $1.51 late last year to its June low of $1.1876.
FED VS BOJ
The dollar dipped as far as 83.01 yen JPY= and fell back towards Tuesday's 2-1/2 year low against the Swiss franc at 0.9645 francs CHF=.
The greenback was well below the high of 83.99 yen it hit after the Bank of Japan (BOJ) announced easing steps on Tuesday.
The BOJ lowered the range on its overnight call rate target and said it would create a 5 trillion yen ($60 billion) pool of funds to buy assets to shore up the economy.
Chris Turner, chief currency strategist at ING said the market saw the amount set aside as relatively small and that the yen was being driven higher by the overall dollar's weakness.
"I think they will intervene if dollar/yen falls below 83 yen," he said. "Right now, yen is being driven more by the dollar's weakness rather than the BOJ's policies."
For an analysis on dollar/yen options please click on [ID:nLDE68R1PE].
Market players expect a turnaround in the dollar only if U.S. data is encouraging or if there are signs of an improving jobs market.
On Wednesday, Automatic Data Processing (ADP) releases its September employment report and economists expect 24,000 jobs were created compared to a loss of 10,000 in August.
(Graphics by Scott Barber, Van Tsui)