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By Brigid Riley and Stefano Rebaudo

TOKYO, April 30 (Reuters) - The yen dropped against the

dollar on Tuesday, giving up some of its sharp gains the

previous day sparked by suspected intervention by Japanese

authorities.

The currency was down 0.40% to 157.00 per dollar,

but off its 34-year low of 160.245 hit on Monday when traders

say yen-buying intervention by Tokyo drove a eye-catching

rebound of nearly six yen.

Japanese authorities haven't confirmed that they had

stepped into the currency market in support of the yen, but

markets remain on heightened intervention alert ahead of the

Federal Reserve's monetary policy review this week.

Official figures that would reveal whether intervention did

in fact occur won't be available until late May.

While some market players had zeroed in on 160 yen per

dollar as the possible trigger for intervention, analysts said

Japanese authorities may not be targeting particular levels.

The Japanese currency still sits lower than it was

before the Bank of Japan's (BOJ) policy announcement last week.

It has also suffered its largest monthly decline since January.

Investors expect Japanese bond yields will remain low for an

extended period. In contrast, U.S. rates are still relatively

high and provide enough latitude for yen bears.

"Facing that (the rates divergence) with forex intervention

typically does not end well," said Garvey Padhraic, regional

head of research Americas at ING.

"The more obvious solution to this is for Japanese rates

to rise. If they don't, something will have to give. And the

bigger the hold-out, the bigger is the subsequent reaction," he

added.

The Fed begins its two-day monetary policy meeting on

Tuesday, where it's expected to hold rates at 5.25%-5.5%, with

U.S. inflation proving to be sticky.

It's also expected to strike a hawkish message, meaning more

yen selling is likely, said Carol Kong, a currency strategist at

the Commonwealth Bank of Australia.

"The implication is the MOF will likely be forced to step in

more than once to slow the rise in USD/JPY."

DIVERGENT ECONOMIC OUTLOOKS

While the timing of any possible rate hikes by the BOJ

remains vague, traders continue to pare back bets of Fed rate

cuts this year amid hotter-than-expected U.S. economic data and

stubborn inflation numbers.

A rate cut in September was looking like a close call at

just 44%, according to CME Group's FedWatch tool.

The dollar rose to 0.16% to 105.69 against a basket of

currencies ahead of the Fed's meeting, after slipping

0.25% in the previous session.

"Fresh U.S. data has prompted our U.S. economist to push out

his projection of the start of the Fed's easing cycle to 2025

from December 2024," said Thierry Wizman, global forex and rates

strategist at Macquarie.

"We don't rule out that the next change may be a hike,

which would prompt a new wave of broad-based U.S. dollar

strength."

Other major central banks such as the European Central

Bank (ECB) and the Bank of England (BoE) may begin to cut rates

in the near future, even if the policy path is more uncertain

after recent developments.

Euro zone inflation is on its way back to 2%, but the

process is bound to be bumpy and geopolitical tensions pose an

upside risk to price growth, ECB Vice President Luis

de Guindos

said late on Monday.

Markets could glean more clues on the timing of ECB's

rate-easing cycle from European inflation data this week due

later on Tuesday. Figures from Germany and Spain released on

Monday were roughly in line with expectations.

The euro fell 0.17% to $1.0719. Sterling

was last trading at $1.2531, down 0.25% on the day.

Elsewhere, a soft retail sales number out of Australia sent

the Aussie sliding, last down 0.60% at $0.653, as

markets further trimmed the risk of another rate hike by

September.

In China, manufacturing and services activity both

expanded at a

slower pace

in April.

The offshore Chinese yuan slipped 0.14% to $7.2523 per

dollar. Despite persistent support from the central bank, the

yuan has depreciated 2% against the dollar so far this year and

is on course for its fourth straight monthly onshore loss.

In cryptocurrencies, bitcoin last rose 0.70% to

$63,357.00.