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FOREX-Dollar retreats as post-Fed meeting rally fades

* Yen hovers near two-month low vs dollar as BOJ stands pat

* ECB Draghi says monetary policy not proper to fix imbalances

* Norway's central bank signals quicker path to rate hike

(Updates market action, changes dateline, previous LONDON) NEW YORK, Sept 21 (Reuters) - The dollar weakened against a basket of currencies on Thursday, retreating from a more than two-week peak as bets stoked by the Federal Reserve signalling it may raise interest rates in December abated. The greenback still managed to hit a two-month high versus the yen after the Bank of Japan as expected stuck with its minus 0.1 rate target and annual bond purchases worth 80 trillion yen ($717.6 billion). The U.S. central bank said on Wednesday it would start to reduce its $4.2 trillion worth of bond holdings that ballooned through three rounds of quantitative easing. Some traders had speculated the Fed led by Chair Janet Yellen may soften its stance on raising interest rates a third time in 2017 as inflation has been stuck below its 2 percent goal and amid signs of weaker business activity in the aftermath of two hurricanes that hammered two southern U.S. states. "People were surprised that Yellen stuck with the script that weak inflation is transitory so there was some short-covering," said Paresh Upadhyaya, director of currency strategy at Amundi Pioneer Asset Management in Boston. At 10:55 a.m. (1455 GMT), an index that tracks the dollar against six currencies was down 0.2 percent at 92.365. It reached 92.697 on Wednesday, its highest since Sept. 5. The greenback firmed against the yen, hitting a two-month peak at 112.71 yen in overseas trading. It was last up 0.06 percent at 112.28 yen. Interest rates futures implied traders saw a 73 percent chance the Fed would raise rates at its Dec. 12-13 meeting , steady from on Wednesday and up from 37 percent a month earlier, according to CME Group's FedWatch program. While traders reassessed the possibility of another U.S. rate increase, they awaited clues on whether European Central Bank would slow its bond purchases later this year due to an improving economy. On Thursday, ECB President Mario Draghi said monetary policy is not an appropriate tool to address financial imbalances but offered no fresh insight on the central bank's asset purchase program. "Anything he says that doesn't sound dovish, the market will take it as hawkish," Amundi's Upadhyaya said. Norway's crown rose against the dollar and euro after the country's central bank kept its policy rate unchanged but said a rate increase is likely earlier than previously expected.

The crown was up 0.3 percent at 9.316 per euro and 0.6 percent firmer against the dollar at 7.8167 crowns.

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Currency bid prices at 10:55AM (1455 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change

Session

Euro/Dollar EUR= $1.1913 $1.1891 +0.19% +13.32% +1.1929 +1.1866 Dollar/Yen JPY= 112.3900 112.2100 +0.16% -3.83% +112.7100 +112.1400 Euro/Yen EURJPY= 133.91 133.43 +0.36% +8.75% +134.0500 +133.4300 Dollar/Swiss CHF= 0.9729 0.9697 +0.33% -4.41% +0.9747 +0.9696 Sterling/Dollar GBP= 1.3520 1.3492 +0.21% +9.60% +1.3522 +1.3471 Dollar/Canadian CAD= 1.2341 1.2319 +0.18% -8.11% +1.2367 +1.2323 Australian/Doll AUD= 0.7918 0.8031 -1.41% +9.74% +0.8036 +0.7918

ar

Euro/Swiss EURCHF= 1.1591 1.1534 +0.49% +8.16% +1.1603 +1.1527 Euro/Sterling EURGBP= 0.8808 0.8813 -0.06% +3.40% +0.8834 +0.8798 NZ NZD= 0.7307 0.7355 -0.65% +5.27% +0.7363 +0.7299

Dollar/Dollar

Dollar/Norway NOK 7.8194 7.8634 -0.56% -9.47% +7.8836 +7.8058 Euro/Norway EURNOK= 9.3153 9.3530 -0.40% +2.53% +9.3718 +9.3023 Dollar/Sweden SEK= 7.9843 8.0115 -0.19% -12.33% +8.0302 +7.9762 Euro/Sweden EURSEK= 9.5122 9.5306 -0.19% -0.71% +9.5344 +9.5102

All spots FX= Tokyo spots AFX= Europe spots EFX= Volatilities FXVOL Tokyo Forex market info from BOJ TKYFX World central bank news CEN

Economic Forecasts... ECON Official rates...INT/RATE Forex Diary.......MI/DIARY Top events........M/DIARY

Diaries...........DIARY Diaries Index........IND/DIARY Press Digests.....PRESS Polls on G7 economies..SURVEY/ European markets......MARKETS/))

(Reporting by Ritvik Carvalho and Dhara Ranasinghe in London; Editing by Meredith Mazzilli)