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updated 1/29/2014 11:51:36 AM ET 2014-01-29T16:51:36

NEW YORK (Reuters) - The dollar weakened against the yen and Swiss franc on Wednesday as traders reckoned emergency action taken to stall the fall of the Turkish currency would not be enough to calm jitters over global emerging markets ahead of an expected U.S. Federal Reserve move to pare stimulus.

Major Market Indices

The greenback initially rose against the yen and Swiss francs - traditional safehaven currencies - after a surprisingly aggressive interest rate hike by the Turkish central bank in a bid to shore up its currency, which had shed over 3 percent since Friday.

But the dollar's gains faded as doubts surfaced whether these emergency efforts could offset the political and economic problems that could bog down faster-growing economies. That view muted any positive impact when South Africa later unexpectedly raised its interest rates.

The South African Reserve Bank became the third key emerging market central bank this week to tighten its policy rate, raising its key rate by half a percentage point to 5.5 percent.

Earlier, the Turkish central bank raised all its interest rates in dramatic fashion with its overnight lending rate jumping to 12 percent from 7.75 percent.

"There are a lot of political and financial fires regionally," said Dean Popplewell, chief currency strategist at Oanda in Toronto. "Emerging market central banks have to be aggressive, but by being so aggressive, that could eventually impact local economic growth, bond yields and stock markets."

Renewed worries about the troubles in emerging markets possibly rippling across the globe spurred fresh selling in Turkish lira, South African rand and revived safehaven bids for the Japanese yen and Swiss franc, analysts said.

In this flight for safety, the dollar slumped against those safehaven currencies but improved against the emerging market currencies.

The dollar's decline against major currencies was mitigated by an expected decision from the Federal Reserve at about 2 p.m. (1900 GMT) to further shrink its monthly bond purchase program.

In December, U.S. central bank policy-makers surprised some investors by paring its third round of quantitative easing by $10 billion in January to $75 billion.

Analysts forecast the Federal Open Market Committee, the central bank's policy-setting group will taper by another $10 billion in February to $65 billion despite the recent market turmoil.

"A lot of people think the Fed won't be swayed by this," Popplewell said.

After recovering another half a percent against the yen overnight, the dollar turned 0.7 percent lower at 102.26 yen, holding above the seven-week low set on Monday.

The dollar edged down 0.2 percent against the Swiss franc at 0.8955 franc.

The dollar index <.DXY> was little changed at 80.577, pausing after two days of gains.

"The safehaven strategy is very much in vogue this morning," Popplewell said.

Investors favoring less risky assets also piled money into U.S. government debt, sending benchmark yields down to 2.717 percent and exerting downward pressure on the dollar, analysts said.

The greenback on the other hand managed a 0.2 percent gain against the euro at $1.3644.

Against emerging market currencies, the dollar rebounded against the Turkish lira at 2.256 lira to the dollar after it traded as low as 2.166 lira initially on Turkey's rate hike decision.

The dollar continued to strengthen against the South African rand as it climbed 2 percent to 11.17 rand per dollar. The dollar rose to a five-year high against the rand last week.

(Additional reporting by Patrick Graham in London, Editing by Rosalind Russell)

(c) Copyright Thomson Reuters 2014. Check for restrictions at: http://about.reuters.com/fulllegal.asp

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