* Dollar index a bit below 2 1/2-month high
* US durable goods, consumer confidence below market expectations
* ECB's Coeure says ECB to ease if inflation recovery slow
* Sterling near 2-week low after soft UK GDP
* Aussie falls to 3-week low on surprisingly soft inflation data
By Hideyuki Sano
TOKYO, Oct 28 (Reuters) - The dollar hovered just below its 2-1/2-month high against a basket of currencies on Wednesday as traders looked for more signs from the Federal Reserve that U.S. interest rates are on course to rise.
U.S. economic data published on Tuesday hardly added to the case for a rate hike, with both durable goods orders and consumer sentiment falling short of market expectations.
"Recently, we had a run of soft U.S. data, retail sales, industrial output, trade and now durable goods. None of these really support a rate hike," said Masatoshi Omata, senior client manager of market trading at Resona Bank.
Non-defense U.S. capital goods orders excluding aircraft, a closely watched proxy for business spending plans, slipped 0.3 percent last month, against median forecast of a flat reading, with August figure also downwardly revised to a 1.6 percent decline. urn:newsml:reuters.com:*:nL1N12R0Z6
Separately, Conference Board's consumer sentiment index fell to 97.6 this month from a reading of 102.6 in September, despite median forecast of a small rise to 103.0.
A rate hike at the Fed's policy meeting ending later on Wednesday is virtually priced out due to underlying concerns over a slowdown in China and the broader impact on global growth.
But many market players still expect the Fed to indicate that interest rates could rise as early as December.
Ahead of the Fed outcome, the dollar index has moved in a narrow range this week. It stood at 96.946 .DXY =USD , below a 2 1/2-month high of 97.201 scaled on Friday.
The euro EUR= , which was knocked by European Central Bank chief Mario Draghi's surprisingly dovish stance last week that opened the door to further monetary easing in December, fell 0.15 percent to $1.1033. But the singale currency stayed above Monday's 2-1/2-month low of $1.0989.
ECB Executive Board member Benoit Coeure said late on Tuesday in Mexico that the bank may need to cut its deposit rate further if inflation rises towards its target more slowly than previous expected. urn:newsml:reuters.com:*:nF9N11000K
"The German two-year yields are already trading at around minus 0.3 percent. You could say that a 0.1 percentage point cut in deposit facility rate to minus 0.3 percent is already priced in," said Masafumi Yamamoto, chief currency strategist at Monex Securities.
The yen stood at 120.44 to the dollar JPY= , having risen to this week's high of 120.16 on Tuesday after the below-expected U.S. durable goods orders data.
The Bank of Japan's policy meeting on Friday also looms large for the yen, with traders split on whether the BOJ will expand its stimulus.
The Australian dollar tumbled almost 1 percent to a three-week low of $0.7119 AUD=D4 , after surprisingly soft Australia's inflation data bolstered expectations of a rate cut by the central bank next week.
Elsewhere The British pound slipped to a two-week low on Tuesday after data showed Britain's economy slowed more than expected in the third quarter, fuelling concern that a period of rapid expansion is coming to an end.
Gross domestic product growth slackened to 0.5 percent in the three months to September from 0.7 percent in the previous quarter. Economists had forecast a drop to 0.6 percent. urn:newsml:reuters.com:*:nL9N0JK01R
Sterling fell to $1.5283 GBP=D4 on Tuesday, having slipped 1.5 percent from one-month high of $1.5510 touched last Thursday. It last stood at $1.5315. (Editing by Shri Navaratnam)