(New throughout, changes dateline from previous TOKYO/SYDNEY)
* Market holidays mute reaction to lacklustre China PMI
* Euro a touch higher having ridden out lower inflation numbers
* Smooth Fed meeting calms worries over weak U.S. GDP
LONDON, May 1 (Reuters) - The euro inched higher on Thursday having ridden out two days of worse than expected news on euro zone inflation and the U.S. economy that have not fundamentally altered perceptions of the policy outlook in either.
This year's dominant trend on major currency markets is the euro's continued strength in the face of a steady reining in of U.S. monetary policy stimulus and expectations the European Central Bank would be forced at some stage to do the opposite.
A number of analysts had predicted low euro zone inflation on Wednesday, following lower than forecast figures out of Germany a day earlier, might be enough to turn the single currency significantly weaker.
But instead it bounced back robustly and was up another 0.2 percent on Thursday at $1.3888 in a session thinned out by public holidays across Asia and Europe.
"I thought yesterday we might have the ingredients for some more decisive weakness but it just did not materialise," said Daragh Maher, strategist with HSBC in London.
"One of the problems is that there is a pretty high level of cynicism about the ECB's willingness to act. On the top side on the other hand there is a reluctance to push higher because that may actually force them to do so."
Policymakers at the euro zone's central bank have talked aggressively about their willingness to take action to head off a debilitating cycle of falling prices and demand, and as such have outright opposed any further gains for the euro.
But they face substantial barriers to delivering the sort of decisive policy action that would weaken the currency at a time when capital is flooding back into the euro zone's peripheral economies and stock markets.
"There is a lot of talk in the market of what the ECB might do next week, but I don't think many people really believe they are capable at the moment," said a dealer with one London bank. "That keeps the euro supported but leaves us in limbo really."
The dollar was propped up overnight by a steady-as-she-goes message from the Federal Reserve on its gradual reduction in the amount of dollars it is pumping into the economy every month. The bank as expected cut another $10 billion off the programme and provided a reasonably upbeat message on the economy that eased market nerves over slightly lower than expected first quarter growth figures.
"The GDP numbers were soft but the Fed had a look and said its outlook was unchanged," Maher said. "You can have weaker numbers but unless it affects the outlook for policy you won't see much reaction."
Against a basket of currencies the dollar was just 0.03 percent lower in early European trade.
China's official Purchasing Managers' Index had little impact on global markets. Some analysts said a similar survey in the UK may offer some direction to sterling, which was trading at $1.6888, very close to highs for this year hit a day earlier.
(Editing by Toby Chopra)