FOREX-Euro down vs U.S. dollar; Fed rate decision looms

* Market sentiment remains shaky as investors take profit

* EU policymakers will come through for Greece-Foxhall

* Eyes on Federal Reserve meeting, Bernanke presser

(Updates prices, adds quotes)

By Gertrude Chavez-Dreyfuss

NEW YORK, June 22 (Reuters) - The euro slipped on Wednesday as investors locked in gains after a vote of confidence in the Greek government and braced for more challenges including a crucial decision on the country's austerity plans.

The dollar was likewise on the defensive ahead of a Federal Reserve statement and a press briefing later on Wednesday, where Chairman Ben Bernanke is expected to affirm the Fed's commitment to keep interest rates low for a long time. [ID:nN1E75J1U9]

Low interest rates diminish the allure of dollar-denominated assets.

Sterling also fell after Bank of England minutes showed policymakers raised the possibility of future quantitative easing. [ID:nL6E7HM05H]. The pound tumbled to $1.6093 against the dollar GBP=D4 and failed to gain against a broadly weak euro.

"We're not walking into a nightmare in the euro zone, but it's not a dream scenario either. It's all a series of hurdles that we have to go through before the market can get much comfortable," said Ken Dickson, investment director of currencies, at Standard Life Investments in Edinburgh.

"Even if all the boxes are ticked and aligned, there's a lot of uncertainty in my mind whether the IMF are happy about paying out the next tranche before the second bailout is agreed. There's a bit of a flip-flop on that."

Euro zone policymakers have still not agreed on the scope and scale of a new Greek aid package and failed to resolve the issue of whether private sector investors should participate in any form of restructuring.

In midday New York trading, the euro EUR=EBS was down 0.1 percent to $1.43932, off a high of $1.44424, while peripheral euro zone bonds spreads widened over German Bunds.

Traders cited upside barriers at around $1.44500 area and said stop-loss orders were seen around $1.43400, just below support at the base of the cloud on the daily Ichimoku chart, a technical analysis tool popular among traders.

The euro was also down 0.3 percent versus the yen at 115.258 EUR=EBS, and 0.7 percent weaker against the Swiss franc to 1.20290 francs EURCHF=EBS.

Event risk on the euro remained high despite the confidence vote as George Papandreou's government still faces the arduous task of passing an austerity plan to secure a new bailout from the European Union and IMF. [ID:nLDE75K21X]

The Greek cabinet is currently in a meeting to approve a new austerity package, ahead of Papandreou attending an EU summit on Thursday in Brussels that investors will keep a close eye on for any signs of progress.

Overall, most investors though are betting European policymakers will come up with a solution for Greece and not allow it to fail.

"The alternative to allowing Greece to default is unthinkable," said Paul Dietrich, chairman and chief executive officer of Foxhall Capital, based in Orange Connecticut, with assets under management of $1 billion.

"If European leaders destabilize the market now by letting Greece default, that would give Portugal and Spain a hard time because their borrowing costs would go up. And before you know it, we have a full-blown contagion."

For now though, the immediate crisis on Greece is temporarily behind it until the June 28 vote on the austerity measures by the country's parliament. A week though is an eternity for some investors.

"It does seem Greece will pass the austerity measures, but it's not just about passing them but implementing them. So we're not out of the woods yet," said Adnan Akant, head of foreign exchange, at Fischer Francis Trees & Watts, a New York unit of BNP Paribas, with about $48 billion under management.

Investors are now focused on Bernanke's press conference at which he is expected to comment on a slowdown in the U.S. economy.

The dollar slipped 0.2 percent against the yen to 80.080 yen JPY=EBS, with traders citing Japanese investor bids down to 79.500 yen and offers from Japanese exporters above 80.500 yen.

The dollar index .DXY, which tracks the greenback's performance against a basket of major currencies, was up 0.2 percent at 74.690, but well off last week's peak of 76.015. (Additional reporting by Steven C. Johnson; Editing by Andrew Hay) ((gertrude.chavez@thomsonreuters.com; +1 646 223 6322; Reuters Messaging: gertrude.chavez.reuters.com@reuters.net; Editing by Andrew Hay))