* Dollar index below two-week highs touched last week
* Yen recovers from short-lived drop after BOJ announcement
* Dollar-long positions trimmed further - IMM data
By Lisa Twaronite
TOKYO, Dec 21 (Reuters) - The dollar was steady in Asian trading on Monday, as holiday calm replaced the previous week's heavy market action driven by monetary policy moves in the United States and Japan.
Trading was likely to be subdued with many market participants already away for the Christmas holiday later this week, as well as a public holiday in Japan on Wednesday.
"While the Fed rate hike has helped to lower risk premia and underscore the strong-USD trend, FX movements may disconnect from fundamentals over the next two weeks as liquidity declines," strategists at Barclays (L:BARC) wrote in a note to clients.
Barclays data show euro/dollar trading volume reduces by about 40 percent on average during the holiday period, they said.
The euro was steady from Friday's late North American levels at $1.0866 EUR=EBS .
The dollar index .DXY , which tracks the greenback against a basket of six rival currencies, was steady at 98.713, though below a two-week high of 99.294 marked on Thursday.
The greenback was changing hands at 121.27 yen JPY=EBS against its Japanese counterpart, nearly unchanged from Friday's North American levels.
After the U.S. Federal Reserve's widely expected interest hike on Wednesday, the Bank of Japan tweaked its monthly asset-purchase program on Friday in a relatively minor way that had a big initially effect on the yen.
It had spiked to a more than two-week high of 123.590 yen shortly after the BOJ's announcement before erasing its gains, on the perception that the minor steps made it less likely that the BOJ would ease monetary policy further.
Ahead of the Fed's move, speculators slashed their bullish bets on the U.S. dollar for a third straight week through Dec. 15, with net longs falling to their lowest since early November, according to Reuters calculations and data from the Commodity Futures Trading Commission released on Friday. IMM/FX
The value of the dollar's net long position dropped to $30.39 billion, from $41.22 billion the previous week - the first time in five weeks that net long dollars came in under $40 billion, as investors adjusted their portfolios to encompass not just the expected rate hike but the future policy outlook as well.
A Reuters poll of 120 economists on Friday forecast the Fed would hike rates again in March, but probably won't move as quickly next year as policymakers have suggested. urn:newsml:reuters.com:*:nL3N14736C
By contrast, the euro zone has far less growth than the United States and it is too early to think of following its lead in raising interest rates, European Central Bank Governing Council member Ewald Nowoty said in a radio interview broadcast on Saturday. urn:newsml:reuters.com:*:nV9N11J01O (Editing by Shri Navaratnam)