* ECB's move to pare asset purchase in line with expectations
* Draghi sees improving growth but inflation stays muted
* Speculation on Fed chair nominee keeps traders on edge
* Dollar index reaches 3-month peak
(Updates market action, changes dateline, previous LONDON) NEW YORK, Oct 26 (Reuters) - The euro fell on Thursday, putting it on track for its worst day against the dollar in a month as the European Central Bank's decision to extend its bond purchases into 2018 at a reduced rate spurred selling of the single currency. As expected, the ECB said it would cut asset purchases to 30 billion euros from 60 billion euros starting in January while also extending the scheme by nine months to September.
Draghi, who expressed some optimism about euro zone growth at his press conference, remained cautious about the region's sluggish inflation which would need continued heavy stimulus in the form of quantitative easing (QE) from the ECB. "With Draghi's openness to QE, it's a victory for the doves," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York. The ECB's move on its bond purchases came five weeks after the Federal Reserve announced its plan to shrink its $4.5 trillion balance sheet that had ballooned from three rounds of QE this month. At 10:02 p.m. (1402 GMT), the euro was at $1.1720, down 0.8 percent from late Wednesday. It was poised for its steepest one-day loss against the greenback since Sept. 25, Reuters data showed. The single currency was down 0.7 percent at 133.41 yen . It retreated from 134.48 yen reached earlier on Thursday which was its strongest against the Japanese currency since December 2015. "The market is still very long euros," Chandler said. The latest CFTC data showed that speculative net longs in the euro have retreated from their record highs but were still near multi-year highs at above $13 billion.
The dollar has risen in recent days on optimism about forthcoming federal tax cuts and speculation U.S. President Donald Trump would select someone to head the Fed who may want to raise interest rates at a faster pace than current Fed Chair Janet Yellen. Trump has narrowed his search for Fed chief to Fed Governor Jerome Powell and Stanford University economist John Taylor, Politico reported on Thursday, citing one source as saying, while another counselled caution. Yellen, Trump's economic adviser Gary Cohn and former Fed Governor Kevin Warsh are also under consideration for the post. Trump is expected to announce his candidate before his Asian trip in early November. An index that tracks the dollar against euro, yen and four other currencies hit a three-month high at 94.306. It was last at 94.247, up 0.6 percent on the day.
Currency bid prices at 10:35AM (1435 GMT)
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change
Euro/Dollar EUR= $1.1715 $1.1812 -0.82% +11.43% +1.1836 +1.1708 Dollar/Yen JPY= 113.7700 113.7300 +0.04% -2.65% +113.8800 +113.3500 Euro/Yen EURJPY= 133.29 134.35 -0.79% +8.24% +134.4800 +133.3100 Dollar/Swiss CHF= 0.9950 0.9895 +0.56% -2.24% +0.9955 +0.9877 Sterling/Dollar GBP= 1.3173 1.3262 -0.67% +6.79% +1.3279 +1.3172 Dollar/Canadian CAD= 1.2821 1.2794 +0.21% -4.53% +1.2826 +1.2781 Australian/Doll AUD= 0.7682 0.7703 -0.27% +6.47% +0.7718 +0.7679
Euro/Swiss EURCHF= 1.1656 1.1691 -0.30% +8.76% +1.1710 +1.1653 Euro/Sterling EURGBP 0.8890 0.8904 -0.16% +4.37% +0.8956 +0.8881 NZ NZD= 0.6851 0.6885 -0.49% -1.30% +0.6903 +0.6849
Dollar/Norway NOK= 8.1151 8.0134 +1.27% -6.04% +8.1228 +8.0026 Euro/Norway EURNOK= 9.5070 9.4684 +0.41% +4.64% +9.5207 +9.4653 Dollar/Sweden SEK= 8.3050 8.2164 +0.25% -8.81% +8.3169 +8.1911 Euro/Sweden EURSEK= 9.7312 9.7067 +0.25% +1.58% +9.7447 +9.6802
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/))
(Additional reporting by Saikat Chatterjee, Ritvik Carvalho and Polina Ivanova in London; Editing by Robin Pomeroy and Susan Thomas)