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FOREX-Euro edges higher as dollar outlook darkens

* Fed minutes indicate policymakers wary of inflation softness

* Graphic: World FX rates in 2017 http://tmsnrt.rs/2egbfVh

LONDON, Aug 17 (Reuters) - The euro on Thursday rose towards 2 1/2-year highs against the dollar seen earlier this month on bets that euro zone officials will embark on a gradual unwinding of their massive policy stimulus while U.S. policymakers looked increasingly wary.

The minutes of the Federal Reserve's July 25-26 meeting showed some members called for halting interest rate hikes until it was clear a softening inflation trend was transitory, but it also indicated the Fed was poised to begin reducing its $4.2 trillion portfolio of bonds.

Even though the euro stumbled on Wednesday after sources signalled European Central Bank chief Mario Draghi would not use his Jackson Hole appearance to signal policy change by the bank, investors remain bullish about the currency's outlook.

"Most investors are still relatively underinvested in the euro and that unwinding is still going on while structural factors such as the current account surplus for the euro zone is a strong support for the currency," said James Binny, EMEA head of currency, State Street Global Advisors based in London.

The single currency was trading slightly higher at $1.1763 in early trades, nearing a 2-1/2 year high of $1.1910 hit earlier this month.

The euro has gained 12 percent so far this year against the dollar and is the best performing currency in the G10 FX space with most of its gains coming in recent months on growing bets that the ECB will start unwinding its massive policy stimulus.

The U.S. dollar was also undermined by worries over U.S. President Donald Trump's ability to implement his economic policies after he disbanded two high-profile business advisory councils.

The dollar's index against a basket of six major currencies slipped to 93.50 from Wednesday's three-week high of 94.145.

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; Editing by Toby Chopra)