FOREX-Dollar falls vs euro on Fed meeting; up vs yen

(Recasts, adds comments)

By Vivianne Rodrigues

NEW YORK, March 18 (Reuters) - The dollar traded near record lows against the euro on Tuesday amid expectations for an aggressive Federal Reserve interest rate cut, while it rebounded versus the yen as stocks rallied and investors' appetite for risk revived.

Markets are pricing in a cut of at least 100 basis points to the Fed's benchmark lending rate from the current 3 percent as the central bank tries to revive the struggling economy. The Federal Reserve's policy-setting panel, which meets on Tuesday, is expected to issue a decision around 2:15 p.m. (1815 GMT).

Expectations of rate cuts deepened after JPMorgan Chase's (JPM.N: Quote, Profile, Research, Stock Buzz) deal to purchase stricken rival Bear Stearns BSC.N for a rock-bottom $2 a share and the Fed's emergency step of cutting its discount rate by 25 basis points on Sunday.

The greenback, which sold off on Monday, remained under pressure on Tuesday, although it advanced against the yen as stronger-than-expected results from Goldman Sachs (GS.N: Quote, Profile, Research, Stock Buzz) and Lehman Brothers LEH.N eased some investors' concerns about the health of the U.S. financial sector.

Demand for the Japanese yen tends to increase as investors' aversion to risk grows. As U.S. stocks rallied, with investors willing to take on more risk, the dollar recouped some of its Monday's sharp losses versus the low-yielding yen.

The dollar on Monday had tumbled to record lows versus the euro, Swiss franc and a basket of major currencies and had fallen further below the 100 yen mark.

"There were still fears lingering about possible liquidity problems in banks such as Lehman Brothers. But given the bank released better-than-expected results, in combination with another solid report by Goldman, the dollar bounced back against the yen," said Mark Meadows, a market strategist at Tempus Consulting in Washington.