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FOREX-Dollar hits 3-yr low as bounce sputters, euro shakes off political concerns

concerns@

* Dollar sags as euro shakes off weakness, reaches 3-yr high

* Players seen sticking to policy normalisation view, buoying euro

TOKYO, Jan 17 (Reuters) - The dollar fell to a three-year low against its peers on Wednesday, with an earlier bounce sputtering as the euro edged back after shaking off a potentially negative turn in German politics.

The dollar index against a basket of six major currencies was 0.27 percent lower at 90.158 after hitting 90.113, its lowest since December 2014.

The dollar index momentarily recovered to 90.826 on Tuesday after slipping steadily this month on expectations major central banks would eventually normalise monetary policy.

But its rebound dissipated as underlying fundamental expectations that had weakened the greenback so far this year remained intact.

"The view held by many market participants is that monetary policies are headed for normalisation across the globe. The dollar is bound to stay weak when such views prevail," said Yukio Ishizuki, senior currency strategist at Daiwa Securities in Tokyo.

The euro was 0.3 percent higher at $1.2296, shaking off weakness seen overnight and going as high as $1.2323, its strongest since December 2014.

The common currency had slid to $1.2195 on Tuesday after news which suggested the ECB might not tweak its policy message very soon curtailed the currency's rally.

The euro was also weighed on Tuesday as members of the centre-left Social Democrats (SPD) in one of Germany's regions voted against talks with Angela Merkel's conservative Christian Democrats (CDU), stoking worries over whether the German chancellor could form a "grand coalition".

"Macro-driven funds appear to have drawn up scenarios already, in which the ECB begins to taper policy this year. Challenges to the euro would be short-lived if many players stick to such scripts," Ishizuki at Daiwa Securities said.

The dollar was 0.05 percent lower at 110.415 yen. It had managed to rise 110.985 on Tuesday but was headed back towards a four-month low of 110.245 marked on Monday.

The Canadian dollar was a shade stronger at C$1.2424 per dollar with immediate focus on the Bank of Canada's monetary policy decision due later in the day.

The BoC is widely expected to raise interest rates by 25 basis points and take the benchmark borrowing cost to 1.25 percent, adding to views that rates will be higher globally this year. Markets expect the central bank to hike as many as three times in 2018.

The Australian dollar rose 0.4 percent to $0.7991 and the New Zealand dollar added 0.15 percent to $0.7276 .

Bitcoin was 0.8 percent lower at $11,300.00 on the Bitstamp exchange. It had lost 16 percent on Tuesday, during which it fell to a 1-1/2 month low of $10,162.00 after reports suggested it was still possible that South Korea could ban trading in bitcoin. (Reporting by Shinichi Saoshiro; Editing by Eric Meijer)