* Euro holds firm ahead of ECB policy decision
* ECB expected to announce gradual withdrawal of stimulus
* Dollar eases vs yen, down from 3-month highs (Updates prices, adds comments)
By Masayuki Kitano
SINGAPORE, Oct 26 (Reuters) - The euro inched higher on Thursday as investors awaited details of the European Central Bank’s plans for scaling back its bond- buying programme, while the dollar took a breather after its recent rally.
The euro inched up 0.1 percent to $1.1824, having edged up from a two-week low of $1.1725 that had been set on Monday.
The ECB is widely expected to announce a scaling back of its bond-buying stimulus on Thursday, taking its biggest step yet in unwinding years of loose monetary policy.
According to a Reuters poll of economists, the ECB is seen likely to announce that it will start trimming its asset purchases to 40 billion euros per month starting from January, down from the current 60 billion euros.
Most economists also expect the ECB asset-buying programme to be extended by either six months or nine months after the current programme expires at the end of this year.
“In terms of the outcome, the likelihood is that there is a discussion between six months and a reduction to 40 billion (euros), or nine months and a reduction to 30 billion,” said Sim Moh Siong, FX strategist for Bank of Singapore.
If the outcome is along those lines, there is unlikely to be any major impact on the euro, and the focus will turn back to dollar-related factors, Sim added.
The dollar took a breather after having rallied over the past week on optimism over the prospects for U.S. tax reforms, as well as speculation that the next chair of the Federal Reserve could steer policy in a more hawkish direction.
The dollar index, which measures the greenback’s value against a basket of six major currencies, slipped 0.2 percent to 93.570, edging away from a two-week high of 94.017 set on Monday.
The dollar has been bolstered recently by optimism about the prospects for a tax-cut plan, and as investors pondered the possibility that Stanford University economist John Taylor could become the next Fed chief.
Taylor favours a rule-based approach to setting interest rates and is seen as someone who may put the Fed on a path of faster rate hikes compared with Fed Chair Janet Yellen, whose term expires next February.
U.S. President Donald Trump is expected to announce his Fed chair candidate before his Asian trip in early November.
Trump’s other possible nominees to head the Fed include Yellen, Fed Governor Jerome Powell, his economic adviser Gary Cohn and former Fed Governor Kevin Warsh.
Against the yen, the dollar eased 0.2 percent to 113.54 yen , down from Wednesday’s three-month high of 114.245 yen.
A pull-back in U.S. 10-year Treasury yields from their recent highs helped temper the dollar’s momentum, said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.
“If Taylor is chosen and U.S. bond yields rise above 2.5 percent, the dollar will probably climb above 115 yen,” he said. But if Trump chooses someone who is seen as being less hawkish than Taylor for the Fed’s top post, the dollar may have a hard time breaching that threshold, Okagawa added.
The 10-year U.S. Treasury yield last stood at 2.426 percent , down from Wednesday’s seven-month peak at 2.475 percent. (Reporting by Masayuki Kitano; Editing by Simon Cameron-Moore and Kim Coghill)