* Dollar turns positive after Fed meeting ends
* Greenback still set for biggest monthly decline since March 2016
* Euro falls after Fed statement, hovers near flat
(New throughout, updates prices, market activity, adds commentary)
By Stephanie Kelly
NEW YORK, Jan 31 (Reuters) - The U.S. dollar turned positive on Wednesday after the Federal Reserve left interest rates unchanged but said it expected inflation to rise this year, while the euro turned negative and last hovered near flat.
The Fed ended a two-day meeting on monetary policy on Wednesday, leaving the target interest rate unchanged at 1.25-1.50 percent. But it said it anticipated the economy to expand at a moderate pace and the labor market to remain strong in 2018, citing solid gains in employment, household spending and capital investment. "It's a continuation of what they've been saying before, the wording was very little changed," said John Bredemus, head of capital markets at Allianz Investment Management in Minneapolis. "They did indicate that there are going to be further rate increases. Is that set up for March? Probably."
Against a basket of six currencies , the greenback was up 0.04 percent at 89.192 at 2:55 p.m. ET (1955 GMT). The dollar was still on track to fall more than 3 percent in January, its biggest monthly drop since March 2016.
Allianz's Bredemus said he did not believe the Fed's statement on Wednesday would significantly impact the dollar.
"I think what's really going on with the dollar has more to do with other central banks, and other central banks pulling back a little bit versus any change in the Fed policy," he said.
The Japanese yen last weakened 0.40 percent versus the greenback to 109.22 per dollar.
Earlier, the Bank of Japan increased its buying of medium-term Japanese government bonds in a move seen as a warning shot against further rises in bond yields. Traders will now be looking ahead to the U.S. government's job report on Friday that will include data on nonfarm payrolls and average hourly earnings.
The ADP Research Institute said on Wednesday that U.S. private employers added 234,000 workers in January, more than the 185,000 forecast among analysts polled by Reuters.The data did not greatly affect the dollar after it was released.
Meanwhile, U.S. President Donald Trump's first State of the Union address on Tuesday night failed to offer any comfort to dollar bulls.
Trump called on the U.S. Congress to pass legislation to ensure at least $1.5 trillion in new infrastructure spending and urged lawmakers to work toward bipartisan compromises, but he pushed a hard line on immigration. EURO MOVES
The euro turned negative and hovered near flat after the Fed statement, last rising 0.02 percent to $1.2403.
The euro had climbed earlier after firm underlying euro zone inflation data for January kept expectations alive for a swift withdrawal of the central bank's stimulus policies.
Underlying inflation, excluding food and energy - a key measure studied to gauge price pressures in the 19-bloc zone - accelerated to 1.2 percent in January from 1.1 percent a month earlier but broader price gauges slowed. The currency was on track for its biggest monthly rise since July 2017.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ euro valuations World FX rates in 2017 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>(Reporting by Stephanie Kelly; Additional reporting by Saikat Chatterjee; Editing by Andrea Ricci and Susan Thomas)
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