* Yen hits 3-week high vs dollar, pares recent sharp falls
* But trend for yen weakness seen remaining intact
* Euro recovers after losses Mon; Fed, ECB meeting awaited
LONDON, April 3 (Reuters) - The dollar fell to a one-month low against a basket of currencies on Tuesday, hit by a recovery for the euro and investors backing off recent bets on a weaker yen.
In quiet pre-Easter trade, market focus centred on the release of the U.S. Federal Reserve minutes to its March meeting later on Tuesday. That could give clues on policymakers' inclination to take further steps to ease policy and may weigh on the dollar.
Investors were also looking ahead to a European Central Bank policy meeting on Wednesday. Analysts said a hawkish message from the bank on the need to get back to concentrating on quelling inflation instead of helping Europe's economy and financial system out of crisis may give the euro a brief boost.
However, many investors were still looking to sell the euro as concerns grew about a fragile outlook for the euro zone and high debt levels in Spain.
The dollar index slipped to 78.664, its weakest since March 1. The fall came as the euro rose to a session peak of $1.3367, near last week's high of $1.3385 as it recovered from falls on Monday when data showed euro zone unemployment at its highest in almost 15 years.
"The market is still very short of euros and this means that in the absence of any negative signals for the euro zone it tends to remain strong," said Asmara Jamaleh, currency strategist at Intesa Sanpaulo in Milan.
"After the ECB meeting the euro could go higher in the very short term, above $1.34, before retracing lower, especially if the ECB remains in wait-and-see mode," she said. However, she warned it could fall towards $1.30 within a month.
Since the mid- to late-March rally from $1.3000 to just below $1.34 fizzled out, the euro has stayed in a relatively tight $1.3250-3400 range. Many analysts expect it to move lower once it breaks below that range. The shared currency was last steady on the day versus the dollar at $1.3314.
The euro dipped against the Swiss franc however, edging down to a two-month low of 1.2033 on trading platform EBS as traders pushed the shared currency closer to the 1.20 franc floor set by the Swiss National Bank last year.
YEN RECOVERS
The dollar dropped against the yen to a low of 81.55 yen, its weakest since March 9, in a correction after a steep February-March rally to 84.19 yen. It last traded flat at 82.06.
The fall was accentuated by traders rushing to cover short yen positions, which according to Commodity Futures Trading Commission data hit their highest in 4-1/2 years in the week to March 27.
Analysts said the broader trend for the yen to weaken remained intact following the Bank of Japan's unexpected easing of monetary policy in February. Speculation that the Fed could tighten its own policy faster than previously expected - and hence raise the return for holding dollars - have also weighed on the Japanese currency.
"People have been buying into the idea that the yen could weaken and perhaps we have seen the strongest period for the yen," said Dag Muller, technical analyst at SEB in Stockholm.
"But in the near term the yen could succumb to more of a correction from short-term exaggerated levels."
Federal Reserve minutes due later in the session are expected to suggest a stand-by approach, with the Fed likely to warn that premature tightening would be risky, while keeping an open-minded but uncommitted view on further easing.
Fed officials on Monday signaled little appetite for further monetary steps to stimulate U.S. growth in an economy that is gradually strengthening. However, Chairman Ben Bernanke said last week that more stimulus would remain an option.
The Australian dollar was down 0.5 percent at US$1.0359 , cutting earlier gains, after the Reserve Bank of Australia kept interest rates unchanged at 4.25 percent but suggested a bias towards easing.
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