* Euro drop gains steam after triggering stops
* Risk reversals show high demand for euro put options
* Belgian finmin: decision in early July on next Greek tranche
* FOMC meeting this week unlikely to support dollar
By Eric Burroughs and Masayuki Kitano
TOKYO/SINGAPORE, June 20 (Reuters) - The euro dipped on Monday as euro zone finance ministers postponed a decision on extending the next tranche of Greek bailout funds, with recent demand for euro put options suggesting investors were bracing for further weakness.
Euro zone finance ministers said they expected 12 billion euros in emergency loans to Greece to be paid by mid-July, but added that disbursement would depend on the Greek parliament first passing laws on fiscal reforms.
"People want decisive action. And delaying it, even for good reasons, doesn't deliver that," said Adarsh Sinha, head of Asia-Pacific G10 FX strategy at Bank of America Merrill Lynch in Hong Kong.
"The bottom line for the market is that it prolongs the uncertainty."
The euro fell 0.5 percent to $1.4232 , edging back in the direction of a three-week low of $1.4073 hit last Thursday on trading platform EBS.
The euro's drop picked up steam after stop-loss offers were triggered at levels near $1.4250.
Market players said they expected European authorities to ultimately extend the emergency loans to Greece, which has said it needs by mid-July to avoid defaulting on its debt.
"They will probably disburse the funds, because you would think that there is no way that they will allow a default (by Greece)," said Koji Fukaya, director of global foreign exchange research for Credit Suisse Securities in Tokyo.
"But the situation still remains opaque," Fukaya said, adding that euro zone officials may be trying to put pressure on Greece's parliament to adopt fiscal austerity measures.
Markets will also closely watch the result of a vote of confidence the newly reshuffled Greek cabinet is due to face on Tuesday.
RISK REVERSALS
Risk reversals on euro/dollar options, which offer an indication of how strong demand is for euro put options compared to demand for euro call options, show that investors have a negative view on the euro.
The risk reversal skew shows that traders are taking euro-bearish positions in options instead of the choppy spot market and that others are using options to hedge their long euro positions, said Sinha at Bank of America Merrill Lynch.
One-month risk reversals now favour euro puts by 2.95 , the highest level since the euro zone debt crisis reached a fever pitch in May-June 2010, according to data from interdealer broker ICAP.
One factor that may lend support to the euro in the near-term, however, is the U.S. Federal Reserve's policy meeting later this week, market players said.
The U.S. central bank is expected to restate its commitment to hold interest rates near zero for an extended period amid signs the recovery has lost momentum and continue to reinvest proceeds from maturing bonds it holds to make sure its balance-sheet does not shrink.
"I think what the market is probably expecting is for the Fed to end QE2...but to keep its balance sheet bloated," said a trader for a Japanese brokerage house in Tokyo, referring to the Fed's Treasuries-buying programme.
If the Fed goes a step further and suggests that it may embark on a third round of quantitative easing if needed, that could trigger dollar-selling and help prop up the euro, the trader said.
The euro's drop on Monday saw the dollar index , which tracks the greenback's performance against a basket of major currencies, rise 0.4 percent to 75.317.
Technical charts suggest that the dollar index is still caught in a downtrend. The dollar index's rise last week had stalled right near trendline resistance drawn from its June 2010 peak.
The dollar also edged higher against the yen, rising 0.2 percent to 80.19 yen . The trader for a Japanese brokerage house said there was talk of stop-loss offers near 79.50 yen, adding that a breach of that level could open the way for the dollar to drop below 79.00 yen. (Additional reporting by Reuters FX analyst Rick Lloyd in Singapore and Ian Chua in Sydney; Editing by Richard Borsuk)