- Focus on whether Fed will keep pledge to keep rates low

- U.S. service sector grew in October, but below forecast (Updates prices, adds analysts' quotes and background)

By Wanfeng Zhou

NEW YORK, Nov 4 (Reuters) - The dollar slipped against most major currencies on Wednesday as a rally in stocks and commodities eroded the greenback's safe-haven appeal and investors awaited a policy decision from the Federal Reserve.

The decision, expected at about 2:15 p.m. (1915 GMT), is the key news for the day. The focus will be on whether the policy-setting Federal Open Market Committee will uphold its pledge to keep the benchmark fed funds rate low for an extended period even as the economy shows signs of improving. See [ID:nN02441229]

Given the recent unwinding of gains in higher-yielding currencies such as the Australian dollar, analysts said any indication that U.S. interest rates will stay low would prompt investors to take on riskier investments. If that happens, that may push the dollar lower, analysts said.

I'm not looking for the Fed to make any substantial changes, said Dan Cook, senior market analyst at IG Markets in Chicago. We had really positive (gross domestic product) growth, but they also realize the employment situation.

We're going to stay where we are at for an extended period on interest rates, he added.

In midday trading, the euro was up 0.8 percent at $1.4837 after hitting a session high of $1.4845, according to Reuters data. On Tuesday, the euro-zone single currency hit a one-month low around $1.4623.

The ICE Futures U.S. dollar index .DXY, which measures the dollar against a basket of six other major currencies, fell 0.7 percent for the day to 75.876. That was a retreat from Tuesday's one-month intraday high of 76.817.

Michael Woolfolk, senior currency strategist at BNY Mellon in New York, said a surprise from the Fed with the extended period language would prove the most important event of the month, but added that it's an outside risk, with perhaps only a 20 percent probability.

All the Fed speakers have indicated since the last meeting that the time is not yet right to start normalizing rates, he said.

ECB, US JOBS AWAITED

The dollar hit a session low versus the euro after a report showing the U.S. service sector grew in October for the second consecutive month helped U.S. stocks extend gains. [ID:nN042167] 

Investors are probably looking at the increase in new orders, which is a leading indicator for economic activity, said Jacob Oubina, currency strategist at Forex.com in Bedminster, New Jersey. Also, export orders increased, which suggests that dollar weakness is helping boost exports. That's a welcome sign for the economy.

But overall, Oubina said, the report was mixed and the most worrisome part is the drop in the employment index, which doesn't bode well for Friday's nonfarm payrolls report.

U.S. private employers shed 203,000 jobs in October, fewer than a revised 227,000 jobs lost in September. [ID:nN04545735]. The U.S. government will release its monthly nonfarm payrolls data on Friday.

Commodity currencies such as the Australian and New Zealand dollars gained as gold prices XAU= hit a record high near $1,100 an ounce and oil rose above $80 a barrel CLc1.

The Australian dollar rose 0.6 percent to US$0.9085, erasing an earlier drop on the back of an unexpected slide in Australian September retail sales. The New Zealand dollar was up 0.5 percent at US$0.7240.

Sterling rallied 0.9 percent to $1.6570 even as wary investors await a UK policy decision on Thursday, which could see the Bank of England increasing asset purchases. [BOE/INT]

The European Central Bank will also make an interest-rate announcement on Thursday. (Additional reporting by Gertrude Chavez-Dreyfuss and Steven C. Johnson; Editing by Jan Paschal)