* Euro drops to one-week low after euro zone, German data
* Fed announcement seen as likely to be non-event
* Aussie rallies on domestic inflation data, China recovery
NEW YORK, Oct 24 (Reuters) - The euro slipped against the dollar and yen on Wednesday after unexpectedly weak German data stoked concern the euro zone's largest economy may be headed for recession.
Losses in the euro were limited after Greece's finance minister said Athens had been given additional time by international lenders to impose its austerity cuts, an assertion played down by leading EU officials.
Germany's Ifo business sentiment fell in October for a sixth consecutive month to the lowest since February 2010, data showed. Private sector activity also shrank for a sixth straight month as factory order books thinned and demand for exports weakened.
``It's a continuation of the poor data that we have been seeing out of the euro zone,'' said Matthew Lifson, senior trader and analyst at Cambridge Mercantile Group in Princeton, New Jersey, ``Which is why I see the euro lower because the economic numbers out of the U.S. seem to be a little bit better than the economic numbers out of the euro zone.''
The euro fell to a session low of $1.2918 on Reuters data, the lowest in a week, before paring losses to last trade at $1.2946, down 0.3 percent on the day.
It held between the recent range of $1.28 to $1.3170 that it has traded in since mid-September, while strong technical support was expected around $1.2835, the 200-day moving average.
Separate Purchasing Managers' Index data showed activity in the euro zone as a whole also contracted more sharply than forecast in October, suggesting the currency bloc's economic decline was deepening.
Markit chief economist Chris Williamson said the PMI survey data suggested German growth had contracted in the third quarter and would do so in the fourth quarter too, which would put the country in recession.
Expectations that indebted Spain is moving closer to asking for a bailout, which would enable the European Central Bank to buy its bonds and lower borrowing costs, have helped support the euro in recent weeks. But uncertainty about the timing of such a request has deterred investors from chasing the currency higher.
ECB President Mario Draghi made a robust defense of his bond-buying plan to ease the euro zone's debt crisis, telling German lawmakers their fears of illegal funding of governments or stoking inflation are misplaced.
The euro also hit a one-week low against the yen at 102.96 yen and was last at 103.33, down 0.3 percent.
The Federal Open Market Committee, the Fed's policy-setting panel, is scheduled to release a statement on its policy deliberations at around 2:15 p.m. (1815 GMT). Most expect it to be a non-event following the central bank's aggressive easing action in September.
``The Fed is likely relieved that it will be off the stage ahead of the election,'' Tony Crescenzi, a portfolio manager at PIMCO in Newport Beach, California, wrote to clients.
``The next major decision point for the Fed will be at its December 12th FOMC meeting when it will have to decide whether or not to maintain its monthly purchases of longer-term securities at the current pace of about $85 billion per month when Operation Twist ends in December.''
The dollar index hit a two-week high of 80.151, before trimming gains to trade at 80.046, up 0.1 percent.
The dollar edged away from the psychologically key level of 80 yen, dipping 0.1 percent on the day to 79.80 yen.
Speculation of more monetary easing from the Bank of Japan on Oct. 30 has weighed on the yen in recent sessions and helped the dollar hit a three-month high of 80.02 yen on Tuesday.
The Australian dollar rallied 0.6 percent to $1.0324 as consumer price figures showed an unexpected uptick, dampening expectations the central bank will lower rates at its next meeting.
A survey showing China, the world's second-largest economy, was recovering from its weakest period of growth in three years also offered support. The Aussie dollar is closely linked to the growth outlook of China, a major export destination of Australian commodities.