FOREX-Dollar sags, Fed seen triggering more losses

* Dollar slips broadly, euro hits 16-mth high

* Fed expected to keep easy money policy unchanged

* Sterling races up after Q1 UK GDP data

(Adds comment, details)

By Naomi Tajitsu

LONDON, April 27 (Reuters) - The dollar fell broadly on Wednesday and looked set to remain pressed due to expectations the Federal Reserve will stick with its ultra-loose monetary policy and point to continued low interest rates.

Sterling shot up to session highs against most major currencies after a reading of first quarter UK growth was in line with expectations but wrongfooted some investors who had sold the pound on anticipation of a softer figure.

Broad dollar weakness pushed the euro to a 16-month high of $1.4715 while the Swiss franc scaled its strongest on record, and analysts see the possibility for the current dollar-selling momentum to take the euro up towards the $1.50 level.

The Australian dollar raced to a 29-year high after consumer price data suggested Australian rates will continue to rise, highlighting the policy divergence between central banks which are on a tightening path and those keeping rates low.

Monetary policy was a key focus in the market ahead of a rate announcement by the Fed later in the day, 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 central banks in Australia and the euro zone, among others, have started to raise rates, analysts said that the Fed's stance will keep the dollar weak as investors dump the U.S. currency for higher-yielding ones.

"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.

In early European trade, the euro EUR= traded slightly higher on the day at $1.4662.

The pound GBP=D4 rose more than a full U.S. cent to $1.6582 after data showed the UK economy expanded 0.5 percent in January-March from the previous quarter.

While the figure was in line with consensus expectations and signalled the Bank of England will keep interest rates low for months to come, traders said the pound jumped after the market had sold the currency heading into the data. [ID:nLDE73Q0SJ]

"Markets had been expecting something even worse, following reports that the Chancellor George Osborne had described economic conditions as 'difficult' following his advance viewing of the data," said Rob Carnell, economist at ING. [ID:nLDE73P11D]

EURO RESISTANCE?

Technical analysts say the euro faced immediate resistance around $1.4720, a level the euro 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.

But Karpowitz at Commerzbank said overstretched long positions in the euro meant "the air was getting thinner" as the euro extends its climb. This suggested that any correction could come hard and fast, he added.

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 descend to an all-time low hit in 2008 of 70.698.

It hovered around 0.8750 Swiss franc CHF=, having fallen as low as 0.8669 franc in Asian trade, while the Australian dollar shot up as high as $1.0853.

The yen was one of the few currencies against which the dollar managed to gain, rising 0.8 percent on the day to 82.12 yen JPY=.

The yen slipped after S&P downgraded its ratings outlook on Japan's sovereign debt, but selling was light as investors are already aware of the economic hardship the country must endure as it recovers from last month's earthquake. [ID:nL3E7FR0D5]

(Editing by Toby Chopra)