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The dollar steadied after overnight plumbing a low for the year against major currencies, having dropped 7 percent since September on expectations the Fed will soon have to flood the banking system with freshly printed cash to support the economy.

An indication that Fed Chairman Ben Bernanke is getting closer to this decision and perhaps considering other measures such as inflation or even gross domestic product targeting would probably unleash more dollar selling and buying of emerging market equities, commodities and longer-term bonds.

With bets against the dollar significantly high, the risk of a bounce is appreciable.

"We are concerned that the market is short dollar based on a deep expectation that the Fed Chairman will hint strongly at an aggressive QE program," Steven Englander, head of G10 foreign exchange stratgy at Citi, said in a note.

"While we do not see the Fed as having an incentive to disappoint the FX or bond markets, it would be easy for hesitation to do damage at this stage."

The euro slipped 0.2 percent to $1.4048 after hitting the highest since January on Thursday around $1.4121.

The U.S. dollar index .DXY, a gauge of performance against six other major currencies, was largely unchanged on the day after dropping to the lowest since December 2009.

Focus on the dollar's decline has become intense, causing political consternation and financial upheaval. Investors have been busy aligning their strategies with the way other asset markets have reacted to the weak dollar.

The Reuters-Jefferies CRB index .CRB and the MSCI all-country world equities index .MIWD00000PUS have a 0.9 inverse correlation with the dollar index on a 90-day basis, meaning basically stocks and commodities have been moving in the opposite direction of the dollar.

After hitting the highest since July 2008 on Thursday, copper traded on the London Metal Exchange slipped 0.1 percent to $8,388 a ton, though was still set for a fourth straight month of gains.

Gold inched up 0.2 percent to $1,379.45 an ounce, but could slide back to around $1,365 if profit taking hit the metal. Still, the near-term target according to chart analysts is $1,404, which could be reached early next week.

In equities, Japan's Nikkei share average fell 0.7 percent .N225, hurt by weakness among banking shares. Despite a 2 percent gain on Thursday, the index continues to underperform other Asian markets this month.

The MSCI index of Asia Pacific stocks outside Japan slipped 0.5 percent .MIAPJ0000PUS, with declines evenly spread across the sectors after hitting the highest since June 2008 in the prior session.

Having some of the biggest developing economies in the world, Asia has been sucking in portfolio investment from abroad at a rapid pace. In general, emerging market equity funds have absorbed more than $60 billion in net inflows this year, $23.3 billion of which has come since the beginning of September, fund tracker EPFR Global said in a note.

(Additional reporting by Reuters Market Analyst Wang Tao in Singapore; Editing by Ron Popeski)

Financial markets, which widely expect the U.S. central bank to begin a new program of buying longer-term U.S. Treasury securities at its November 2-3 meeting, will hang on Bernanke's words for clues about the scope of the program.

Observers will also look for more details about Fed plans to raise markets' expectations of future inflation, a subject policy makers broached at their last meeting in September.

Raising inflation expectations could boost the economy by spurring businesses and consumers to make purchases before prices rise. It could also encourage borrowing, since inflation erodes the value of loans.

Bernanke is due to talk at 8:15 a.m. ET at a Fed conference in Boston.

Since the U.S. recovery began showing signs of fading over the summer, the Fed has steadily built up expectations that it would renew its large-scale asset buying to support growth. Most economists expect around $500 billion in easing before the end of the year, a Reuters poll showed.

"It's more or less clear that they will pull the trigger," said Yelena Shulyatyeva, an economist for BNP Paribas in New York. "It depends on the specifics -- how much it will be, what the initial installment will be."

The Fed's move toward further easing has pushed the dollar down to its lowest level this year against a broad basket of currencies, drawing the ire of emerging economies contending with a flood of capital as investors chase higher yields. Many countries, worried about the impact on their exports, have taken steps to temper the rise in their currencies, sparking fears of a series of competing devaluations.

RECESSION OVER BUT UNEMPLOYMENT LINGERS

Even though the deep U.S. recession ended in June 2009, unemployment still hovers at a lofty 9.6 percent, and core inflation, as measured by the Fed's favorite gauge, has slipped to 1.4 percent. Fed officials shoot to keep inflation in a range of 1.7 percent to 2 percent.

When Fed officials convened on September 21, many felt progress was unsatisfactory on both the jobs and inflation fronts. Several officials felt a further easing of policy would be needed soon absent a sudden improvement in the economy.

Financial markets will look to Bernanke to provide clarity on whether the Fed is likely to announce a big program of asset purchases to be carried out over several months or whether it will opt for more modest buying plans made public one meeting at a time. Some Fed officials believe the impact of asset buying in lowering borrowing costs is greatest when markets know the full extent of the Fed's purchase plans.

"It seems to me that they would err on the side of a shock-and-awe-type approach at this point to really try to jump-start the economy," said Jay Bryson, an economist for Wells Fargo Securities.

Another unknown is what new communications strategy the Fed could use to complement any asset buying and battle the risk a troubling deflation could take hold.

Minutes of the Fed's September 21 meeting released on Tuesday showed officials debated setting an explicit target for inflation, or even announcing they will allow inflation to temporarily run above targeted levels for a time to make up for lost ground if inflation fell short of their objective.

The Fed traditionally seeks to prevent inflation at all costs. But with month upon month of sluggish growth and high unemployment, some officials worry prices could enter a damaging downward spiral.

Analysts said strong growth across Google's core advertising business led to a 25-percent surge in net revenue in the third quarter, sending its shares 9 percent higher.

"This is the best performance they've had in three years. We're back to the old Google we know and love," said RBC Capital Markets analyst Ross Sandler.

"Clearly search is holding up better than anyone expected," while efforts to branch into display and mobile advertising are on track to become significant parts of the business, he noted.

Investors had feared that Google, seeking new sources of growth, was spending recklessly on initiatives such as its Android mobile software, acquisitions, renewable energy projects and even automated cars, with uncertain returns. In July, Google's second-quarter earnings fell short of Wall Street expectations, marking the first time in two years that the company had missed profit estimates.

But executives on Thursday offered investors what they said was a one-time glimpse of sales generated by its mobile and display advertising businesses. Those operations generated annualized revenue run rates of more than $1 billion and $2.5 billion, respectively -- underscoring the outcome of investments into smartphones and online projects.

Google disclosed two revenue numbers to give Wall Street "confidence that where we're investing in is really fueling great growth rates," Chief Financial Officer Patrick Pichette told analysts on a conference call.

Kaufman Brothers analyst Mayuresh Masurekar said Google's $1 billion run rate in mobile was higher than investors had expected, but he noted that the $2.5 billion run rate in display advertising was a gross number, meaning that some of that revenue is paid to Google's partners.

Still, he said, the numbers should ease investor concerns about the company's spending.

"It shows that the investments that management is making, like the ones that they made in the past, ... are bearing fruit," Masurekar said.

Analysts also pointed to a 16-percent jump in "paid clicks" on Google's search advertisements, while earnings handily surpassed expectations despite hiring at a near-record pace and a one-third jump in operating costs.

Shares of Baidu Inc (BIDU.O), the No. 1 search engine in China, rose 2.8 percent to $100.99 following Google's results. Google has lost market share in China this year, following a spat with Beijing over censorship that resulted in Google relocating its search site to Hong Kong.

RECORD HIRING

Google's stock has underperformed the broader market in 2010, partly because the company's growth prospects appeared to be slowing amid increasing competition from social networking powerhouse Facebook, which counts more than 500 million users.

On Wednesday, Facebook and Microsoft unveiled improvements to Microsoft's Bing search engine that incorporate personalized Facebook data, such as restaurant recommendations from a person's friends, into search results.

The world's largest Internet search engine on Thursday posted a third-quarter net income of $2.17 billion or $7.64 a share, excluding items, surpassing Wall Street's average estimate of $6.69 a share, according to Thomson Reuters I/B/E/S.

"Looks like business is solid across the board. The biggest concern for investors was expenses. Given the EPS number, it looks like margins have to be better than what the Street was expecting," said UBS analyst Brian Pitz.

Net revenue, which excludes fees that Google pays to partner websites, came to $5.48 billion, versus expectations for $5.27 billion. Net revenue in the 2009 third quarter was $4.38 billion.

Google said that paid clicks on its search ads increased 16 percent year-over-year, and 4 percent from the second quarter.

Google added more than 1,500 employees to its payroll in the third quarter and its operating expenses totaled $2.19 billion, up from $1.64 billion in the year-ago quarter.

Investors have been worried that the company, seeking new sources of growth, is spending recklessly on initiatives such as its Android mobile phone software, acquisitions, renewable energy projects and even automated cars, with uncertain returns. At the same time, social networking giant Facebook poses a growing threat to Google's online advertising business.

Shares in the company rose in extended trading to $590.00, from a regular session close of $540.93 on Nasdaq.

(Reporting by Alexei Oreskovic; Editing by Richard Chang)