* Drop in U.S. home sales leads investors to pare rate hike bets
* Yen edges higher, with Friday's BOJ meeting next focus
By Lisa Twaronite
TOKYO, Oct 27 (Reuters) - The dollar was on the back foot in Asia on Tuesday, after disappointing U.S. home sales data pushed down Treasury yields and prompted investors to pare bets that the U.S. Federal Reserve would opt to hike interest rates before year-end.
Data released on Monday showed new U.S. single-family home sales fell to near a one-year low in September after gaining for two straight months.
The disappointing figures backed expectations that the U.S. central bank will leave rates near zero on Wednesday, at the close of a two-day meeting beginning later in the session.
"The arguments for a 2015 rate hike are fading," Kathy Lien, managing director of BK Asset Management, wrote in a note to clients.
"More specifically, while we are long-term dollar bulls, the 'trader' in us sees a greater chance of dollar weakness going into and after this week's FOMC meeting," she said.
Against its Japanese counterpart, the dollar slipped about 0.2 percent to 120.89 yen JPY= , ahead of a Bank of Japan meeting on Friday.
While Japan's central bank is set to cut its price forecasts in a semi-annual report also due out Friday, many BOJ officials would prefer to hold off on expanding the bank's massive stimulus programme.
Divergent monetary policy expectations bolstered the greenback against the euro, which was buying $1.1057 EUR= . Investors expect the European Central Bank to eventually expand or extend its asset purchase programme to support the euro zone economy.
The dollar index, which tracks the U.S. unit against a basket of six rival currencies, was down 0.1 percent at 94.769 .DXY .
The yield on benchmark 10-year Treasuries notes US10YT=RR stood at 2.054 percent in Asian trading, compared to its U.S. close of 2.058 percent on Wednesday. The yield scaled a two-week peak of 2.099 percent on Friday.
The futures market implied traders see only a 7 percent chance of a rate hike on Wednesday and a 34 percent probability of a rate increase at its next meeting in December, according to the CME FedWatch program.
Fed officials have been sending mixed messages to markets in recent weeks. Analysts say that Federal Reserve Chair Janet Yellen needs to adopt a stronger tone after this week's policy meeting if she expects to convince markets that a December interest rate rise is still a real possibility. (Editing by Shri Navaratnam)