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FOREX-Dollar falls to 13-month lows as market looks to Fed

* Outlook improving for euro zone, China economies

* Fed to ponder plan to cut bond portfolio

LONDON, July 25 (Reuters) - The dollar fell to a 13-month low on Tuesday against a trade-weighted basket of major currencies, extending recent declines as investors positioned for a Federal Reserve meeting starting later in the day.

Undermining the case for a Fed rate increase in coming months, the dollar has been hit by weak U.S. data that has contrasted with an improving economic outlook in Europe and China.

"I don't think this is a dollar-negative story so much as a relatively optimistic story for the other parts of the world and that continues to play through the currency markets," said Adam Cole, head of G10 FX strategy at RBC Capital Markets in London.

Prospects for tighter monetary policy in Europe and elsewhere could further complicate a policy conundrum for the Fed as it ponders a plan to reduce its stock of bonds purchased after the 2008 financial crisis. The Fed meeting ends on Wednesday.

In early trades on Tuesday, the dollar index fell to its lowest since June 2016 at 93.815. It has fallen nearly 4 percent over the last month and more than 8 percent this year.

Political ructions in Washington linked to alleged attempts by the Kremlin to meddle in last year's U.S. presidential election have also weighed on the dollar, along with reduced inflation expectations.

Against the yen, the dollar eased slightly to 111 yen on Tuesday, having slipped as low as 110.625 yen, its lowest since mid-June, the previous day.

The International Monetary Fund on Monday raised economic growth expectations for the euro zone and China as it kept global growth forecasts unchanged for this year and next.

For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.bi z / c m s / ? p a g e I d = l i v e m a r k e t s

(Reporting by Saikat Chatterjee; Additional reporting by Masayuki Kitano in SINGAPORE; editing by John Stonestreet)