FOREX-Dollar rises against major currencies on Fed speculation
* Markets wait for Fed to clarify stimulus stance
* Bernanke likely to soothe market fears
* Euro hits 4-month high after German data, then retreats
NEW YORK, June 18 (Reuters) - The U.S. dollar rose against most other major currencies on Tuesday as some traders bet the Federal Reserve may signal it's close to reducing its bond-buying program aimed at propping up the economy.
The yen lost more than 1 percent against the dollar, retreating a recent two-month high. The yen rallied sharply last week as uncertainty about Fed sparked a sell-off in global stocks and drove investors to the safe-haven Japanese currency.
The Financial Times reported on Monday the Fed was likely to signal that a move to reduce the program was close. A winding down of the central bank's $85 billion-a-month bond purchase would boost the dollar, which has been hit by the Fed's money-printing program over the past several years.
"After yesterday's FT article, investors are starting to hedge against the risk of possibly talk of Fed tapering maybe as early as September," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
The Fed concludes its two-day policy meeting on Wednesday and Bernanke will hold a press conference after the meeting.
While many in markets see the Fed trimming its asset purchases this year, most see higher overnight interest rates as distant. Foreign exchange analysts say Bernanke will try to soothe investor nerves and that this explains the dollar's rise against the yen.
"Bernanke will try to downplay the tightening impact of tapering quantitative easing, which could help ease some of the concerns in the market... this could help dollar/yen head higher," said Lee Hardman, currency economist at BTMU in London.
The dollar rose 1.1 percent to 95.54 yen having hit a two-month low of 93.78 yen on Thursday. A reported options expiry at 95.35 yen could keep the pair close to that level.
HSBC strategist Daragh Maher expects Bernanke to emphasize that any scaling back of Fed stimulus will depend on data. "While this should be generally dollar bullish, if volatility rises it could see dollar/yen lose ground."
Since Japanese Prime Minister Shinzo Abe called late last year for radical monetary easing to revive the economy, dollar/yen has been driven higher by rises in Japanese share prices.
But worries China is slowing coupled with talk of the Fed withdrawing stimulus led to a stocks selloff and a sharp rise in volatility. This drove investors to the yen which tends to benefit in times of market turmoil.
One-month dollar/yen implied volatility jumped to two-year highs and was last trading at around 15 percent.
The euro fell 0.1 percent to $1.3358, having reached a four-month high of $1.3399 after ZEW data showed German analyst and investor sentiment rose in June.
European Central Bank chief Mario Draghi said the bank was "ready to act" if needed, although recent signs of market stabilization meant monetary policy was proving effective.
The dollar briefly hit a session peak versus the yen, while the euro extended gains after data showed U.S. consumer prices rose in May and a gauge of underlying price pressures showed signs of stabilizing after a long decline, a potential comfort to Federal Reserve policymakers who would like to see stronger inflation.
Other data showed an increase in groundbreaking at home construction site.
The dollar index, which measures the greenback versus a basket of currencies, gained 0.1 percent to 80.877.