(Updates to U.S. trading, changes byline, dateline, previous LONDON)
* Dollar down slightly as markets await Fed announcement
* Analysts flag risk of hawkish surprise
* Aussie rises after inflation surprises speculators
* Equities, oil slip on China slowdown fears; oil recovers
By Dion Rabouin
NEW YORK, Jan 27 (Reuters) - The dollar edged lower against a basket of major currencies on Wednesday as oil declined and investors awaited the Federal Reserve's statement for clues on whether bets on a single U.S. interest rate rise in 2016 are justified.
Fed fund futures 0#FF: are implying markets expect just one rate hike this year, compared with four according to Fed policymakers' guidance. That has put the main focus on what the Fed says at 2 p.m. EST (1900 GMT) after a two-day policy review that started Tuesday.
A more aggressive path of rate increases would boost U.S. short-term rates, which would likely help the dollar against lower-yielding currencies such as the yen or euro.
While the U.S. central bank is almost certain to keep rates unchanged, investors are anticipating its policy statement, particularly given markets' turbulent start to the year.
The dollar index .DXY fell 0.26 percent to 99.101, trudging further below a seven-week high of 99.799 set last Thursday.
The euro rose above $1.09 to its highest in six days but quickly returned those gains to be flat at $1.0874 EUR= .
With markets largely in wait-and-see mode before the Fed, sterling GBP= was the biggest mover, falling 0.7 percent against the dollar as fears of a U.K. exit from the euro zone grew.
The Australian dollar hit a three-week high AUD=D4 after a measure of domestic inflation came in slightly higher than expected. It rose around 0.5 percent against its U.S. counterpart, while other currencies seen as risky struggled. getting to the end of the month, and equities are down 6 or 7 percent to start the year; in China those moves happen every day ... and crude oil, there's no bid until there is and it goes up nine percent in a day," said Lane Newman, director of foreign exchange at ING Capital Markets in New York. "So it's a bit of all over the place like a mad woman's breakfast."
The dollar added 0.1 percent versus the yen to 118.53 JPY= .
Most markets were choppy, with most Asian bourses .MIAPJ0000PUS .N225 closing up on the day but European stock markets .FTEU3 falling alongside oil prices LCOc1 CLc1 . U.S. stocks .SPX fell, pulled down by oil and lackluster results from Apple AAPL.O and Boeing (N:BA) BA.N .
Crude futures fell around 1 percent but later recovered to trade flat to higher.
More central bank policy decisions are coming up this week, with the Reserve Bank of New Zealand announcing its decision Thursday, and the Bank of Japan's policy statement due on Friday.