SINGAPORE, July 31 (Reuters) - The yen hovered near a

2-1/2-month high on Wednesday ahead of a key Bank of Japan (BOJ)

policy decision where the central bank is set to detail plans to

taper its huge bond buying and a rate hike is on the cards.

Wednesday looked set to be a busy day for markets, with

China's official purchasing managers' index (PMI) data and

Australian consumer price figures also due during the Asian

session.

That is followed by inflation readings in France and the

wider euro zone later in the day, alongside the Federal

Reserve's policy decision, which takes centre stage. Escalating

geopolitical tensions also cast a cloud over markets.

With plenty of risk events to mark the month-end, currency

moves were largely subdued in early Asia trade as investors were

hesitant to take on fresh positions.

Still, the yen eked out a slight gain to last

stand 0.06% higher at 152.65 per dollar, after having jumped

0.8% in the previous session in the wake of news reports that

said the BOJ is mulling raising short-term rates to around

0.25%.

The Japanese currency looked set to end the month with an

over 5% gain, helped by Tokyo's bouts of intervention and the

massive unwinding of short-yen carry trades in anticipation of

Wednesday's BOJ outcome.

"We believe that the BOJ likely will make significant

headway on its exit from unorthodox policy at the July meeting

by reducing bond purchases and hiking interest rates," said

Gregor Hirt, global CIO for multi asset at Allianz Global

Investors. "We anticipate that the BOJ will increase interest

rates to around 0.25% at the upper limit."

"A rate hike could help stabilize the yen's current levels,

whereas the absence of a rate hike may trigger renewed selling

pressure driven by carry trades."

The yen similarly made headway against other currencies,

with the euro falling 0.07% to 165.07 yen and the

Australian dollar slipping 0.12% to 99.80 yen.

BRACING FOR THE FED

The euro was last 0.02% higher at $1.0817 and was

eyeing a 0.95% gain for July, helped by an easing dollar.

Data on Tuesday showed the euro zone's economy grew slightly

more than expected in the three months to June, but the outlook

for the remainder of the year was not quite so rosy.

Separate data released the same day also revealed the German

economy unexpectedly contracted in the second quarter, while

domestic inflation rose this month.

Sterling eked out a 0.02% gain to last trade at

$1.2840, and was eyeing a monthly gain of 1.5%. The dollar index

was little changed at 104.46, and was on track to lose

1.3% for the month.

Traders were closely watching the Fed's policy decision

later on Wednesday - likely to be the next main catalyst for

broad currency moves after the BOJ - where expectations are for

policymakers to lay the groundwork for a September rate cut.

Markets are expecting a September start to the Fed's easing

cycle, with about 68 basis points worth of cuts priced in for

the rest of the year.

Expectations of imminent Fed cuts have halted the dollar's

advance, after decades-high U.S. rates bolstered the greenback's

appeal for the most part of the past two years.

"We expect (the Fed) to open the door to a first interest

rate cut in September. In our view, such a move today could send

the wrong signal to markets and could spook investors," said

Julien Lafargue, chief market strategist at Barclays Private

Bank.

"On the other hand, with markets already pricing in slightly

more than 25bp worth of cuts in September, the Fed may find it

hard to push back against these expectations."

Elsewhere, the Aussie rose 0.05% to $0.6542 ahead

of the country's inflation figures due later on Wednesday, and

was headed for a monthly loss of nearly 2%, its worst

performance since January.

The New Zealand dollar ticked up 0.03% to $0.5905,

though was similarly on track for a more than 3% drop in July.

Both Antipodean currencies have been weighed down in part by

falling commodity prices and China's bleak economic outlook,

given the two are often used as liquid proxies for the yuan.

Chinese leaders signalled on Tuesday that the stimulus

measures needed to reach this year's economic growth target will

be directed at consumers, deviating from their usual playbook of

pouring funds into infrastructure projects.