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* Dollar index near 3-yr lows, euro hits 16-mth high
* Fed expected to keep easy money policy unchanged
* Sterling races up after Q1 UK GDP data
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By Naomi Tajitsu and Anirban Nag
LONDON, April 27 (Reuters) - The dollar fell against most currencies on Wednesday and looked set to stay under pressure on expectations the U.S. Federal Reserve will reaffirm its ultra-loose monetary policy for the coming months.
Sterling neared 17-month highs against the greenback after an in-line reading of first quarter UK growth, with investors who had sold the pound on anticipation of a softer figure being forced to buy it back. [ID:nLDE73Q0SJ].
But they extended bearish bets against the dollar, keeping
the euro
Analysts say the current dollar-selling momentum may take the euro towards $1.50 as investors focus on policy divergences between central banks on a tightening path and those keeping rates low.
Monetary policy will take centre-stage ahead of a rate announcement by the Fed later in the day. The U.S. central bank is widely expected to keep rates near zero and signal that it is in no hurry to scale back its massive support for the economy.
Given that the European Central Bank has started to raise rates, and others like the Australian central bank are in the midst of a tightening cycle, analysts said the Fed's stance will keep the dollar weak as investors choose higher-yielding currencies.
"It's clear Fed monetary policy is the reason for dollar weakness. If we don't get any hint that the Fed will normalise, the dollar will continue to stay under selling pressure," said Lutz Karpowitz, currency strategist at Commerzbank in Frankfurt.
The euro was up 0.2 percent at $1.4672. Traders said Asian
and Middle East sovereign accounts were looking to buy the euro
on every dip. Offers for the euro
Technical analysts say the euro faced immediate resistance around $1.4720, a level hit when it briefly spiked up in late 2008, and $1.4775, the top of a weekly trendline channel drawn from lows hit in February and April.
Market participants say a sustained break above this level would open the way to the psychologically key $1.50.
Commonwealth Bank of Australia on Wednesday revised its forecasts for the U.S. dollar lower. The bank now expects the euro to rise to $1.50 by end-September, having earlier forecast the euro to fall to $1.42.
"We now believe the USD won't recover until the Fed formally changes their monetary policy guidance from an easing bias to a tightening bias," said chief strategist Richard Grace.
YEN ALSO FALLS
The dollar <.DXY> skidded to a three-year low of 73.493 against a currency basket, down close to 10 percent from its peak in January, and many traders expect the index to eventually reach its all-time low, hit in 2008, of 70.698.
The greenback hovered around 0.8760 Swiss francs
The pound
The yen was one of the few currencies against which the
dollar managed to gain, rising 1 percent on the day to 82.36 yen
The euro also rose more than 1 percent on the day to around
120.70 yen
The yen came under pressure after S&P downgraded its ratings outlook on Japan's sovereign debt. It warned the huge cost of last month's devastating earthquake would hurt already weak public finances unless the government raised taxes.
(Editing by Toby Chopra, John Stonestreet)