* Yen skids, Aussie soars as Turkey rate hike eases emerging market anxiety
* Most investors expect Fed to slice $10 billion off monthly bond buys
By Lisa Twaronite and Ian Chua
TOKYO/SYDNEY, Jan 29 (Reuters) - The dollar gained on the euro and the yen on Wednesday after Turkey’s sharp interest rate hike eased some fears about capital flight from emerging markets and as the U.S. Federal Reserve geared up to scale back its stimulus further.
Higher-risk currencies such as the Australian dollar rallied after Turkey stunned markets with a massive rate hike.
Turkey’s central bank, hot on the heels of India, raised all of its key interest rates - more than doubling some - in a move that could help calm investors’ recent anxiety over emerging markets in general.
“Turkey does not have a direct impact on major currencies, so markets have now turned their attention to the Fed,” said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.
“The Fed maybe has more confidence in the U.S. economy, and the markets are growing more comfortable with this, and pricing in more tapering,” he said.
Markets were already calming down after Friday’s panic selloff in some emerging markets assets, triggered by fears of slowing growth in China as well as expectations that the U.S. central bank will further scale back its stimulus.
The Fed concludes its two-day policy meeting later on Wednesday and is all but certain to reduce its bond purchases for a second time, to $65 billion per month from $75 billion. It is seen as likely to leave intact its vow to keep interest rates low.
The meeting is the last for Fed Chairman Ben Bernanke, who will hand the reins to Vice Chair Janet Yellen.
That greenback gained 0.4 percent on the day to 103.34 yen , moving further away from a seven-week low of 101.77 yen hit on Monday.
One-month implied volatility, a measure of the degree to which investors expect a currency will move, in dollar/yen edged down to 8.825 percent. It had spiked as high as 10.125 percent on Monday, its highest since mid-December, after trading as low as 7.975 percent late last week.
The common currency gained 0.3 percent to 141.12 yen , also moving away from its own seven-week low struck on Monday of 139.25 yen.
The euro slipped about 0.1 percent against the U.S. dollar to $1.3657, having drifted lower in the last few days from a three-week high of $1.3740 last Friday.
The Turkish lira jumped to 2.1650 per U.S. dollar from 2.2530 before the moves.
“We believe that the CBRT - with its aggressive move - has engineered a credible policy response,” analysts at Societe Generale wrote in a note to clients, referring to the Central Bank of the Republic of Turkey.
“As a result, there is now scope for the Turkish lira to stage a quick rebound, at least in the short term,” it said.
The Australian dollar, often used as a liquid proxy for risk trades, added about 0.3 percent to $0.8801.