* Expectations of optimistic ECB tone help euro
* Dollar index just off 7-month high
* Odds now point to December U.S. rate rise
* Eyes on China GDP, ECB, U.S. presidential debate (Updates after start of European trade)
By Patrick Graham
LONDON, Oct 17 (Reuters) - The euro steadied on Monday ahead of a meeting of the European Central Bank (ECB) on expectations that officials are beginning to consider reining in the volume of extra emergency aid they give to the euro zone economy next year.
The dollar has had its best fortnight for more than a year against a basket of currencies .DXY , up 2.5 percent since the start of October, but the shift upwards in U.S. bond yields behind that move looks to be running out of steam. US10YT=TWEB
On the European side of the equation, the ECB is still expected at some stage to announce an extension of its quantitative easing programme past March of next year.
But there is speculation that the bank, like many of its peers, is at least beginning to question the wisdom of an endless policy of money-printing and ultra-low interest rates that put persistent downwards pressure on the euro.
"The market broadly sees that the ECB is going to be somewhat more positive on the outlook for Europe this week," Citi's G10 FX strategist in London, Richard Cochinos, said.
"They still will need to announce more accommodative policy next year, but it does seem that they may also believe the need for ever greater accommodation is decreasing. That is leaving the euro positive on the (non-dollar) crosses."
The euro, which fell below $1.10 for the first time in almost three months last week, gained 0.1 percent in early London trade.
The dollar index was up 0.1 percent at 98.104 .DXY after touching 98.158, its highest since March 10.
Another big element of the rise in the past fortnight has been a retreat in the yen from levels around 100 per dollar. The U.S. currency was flat on the day at 104.15 yen JPY= on Monday after rising to as high as 104.480 on Friday.
The dollar took support on Friday from strong U.S. retail sales and producer price data for September, another sign that the U.S. economy regained momentum in the third quarter after a lacklustre first half. ECONUS
Speculators lifted favourable bets on the dollar for a third straight week, with net longs hitting their highest in more than eight months, according to Reuters calculations and data from the Commodity Futures Trading Commission (CFTC) released on Friday. CFTC data showed speculators cut yen net longs to 45,000 contracts from roughly 70,000 the week before.
"For now, support for dollar/yen is likely to come from passive selling of the yen involving winding down of positions, rather than active, speculative selling," FPG Securities president, Koji Fukaya, said.
"A December (U.S.) rate hike is mostly priced in by the market. The key to further dollar strength is how far U.S. long-term rates can climb."
The 10-year US10YT=RR Treasury yield hit another 4-month high in early London trade, but shorter-dated paper is off last week's highs.