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US dollar slips in Asia as euro treads water

TOKYO--The dollar weakened in Asia Tuesday with markets eyeing a U.S. Federal Reserve meeting later in the week, while the euro treaded water ahead of a German court ruling on the eurozone's bailout fund.

The common currency bought US$1.2765 in Tokyo morning trade from US$1.2758 in New York late Monday, while it was at 99.85 yen from 99.86 yen in U.S. trade.

The dollar was quoted at 78.20 yen, from 78.27 yen.

“It's difficult for investors to trade actively ahead of key events both in Europe and in the United States,” said Tohru Sasaki, chief foreign exchange strategist at JPMorgan Chase Bank.

Dollar-yen trading would likely stay within a narrow range as markets speculate about whether the U.S. central bank meeting on Thursday will see the launch of further stimulus to power the world's largest economy.

“Opinion is mixed toward whether the Fed would initiate QE3 (a third round of quantitative easing, or bond-buying), and the market is having a hard time factoring in a possible outcome,” Kengo Suzuki, forex analyst at Mizuho Securities in Tokyo, told Dow Jones Newswires.

Last week, the euro jumped above 100 yen for the first time in two months after the European Central Bank said it would buy bonds from troubled eurozone nations in a bid to bring down their borrowing costs and prop up the currency.

But euro sentiment has dampened since owing to broader worries about the bloc sinking into recession, while traders looked to Wednesday's German court ruling on the European Stability Mechanism bailout fund (ESM), dealers said.

The court, which was set to rule on the fund's constitutional legality, was not expected to block the ESM.

Also Wednesday, the Netherlands holds parliamentary elections for the second time in two years after a tight race dominated by economic uncertainty thanks to Europe's long-running debt crisis.

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