FOREX-Dollar drops as Fed to keep rates low for some time

* Fed to keep rates low for some time, weighs on dollar

* Investors remain cautious about U.S. outlook (Recasts, updates prices, adds comment, Fed decision; changes byline)

NEW YORK, Nov 4 (Reuters) - The dollar fell in choppy trading against the euro on Wednesday after the Federal Reserve left interest rates steady, as expected, and said it intends to keep interest rates low for some time.

Low interest rates should ensure that the dollar will remain a funding currency in carry trades, or transactions in which investors borrow in dollars to buy higher-yielding assets.

Investors, however, remained cautious about selling the dollar too much. The Fed said in its statement that while economic activity has picked up, consumer spending has remained constrained by job losses and tight credit.

For Fed statement, click on [ID:nTRU000422].

The euro rose as high $1.4906, but came all the way down to $1.4828. It was last at $1.4890, up more than 1.0 percent on the day. Against the yen, the dollar was up 0.7 percent at 90.98 yen .

"What happened here initially is obviously this knee-jerk reaction where people think low rates for a while should keep the dollar weak," said Greg Salvaggio, senior vice president for capital markets at Tempus Consulting in Washington/

"However, the catch to this is the Fed is signaling the U.S. economy is in very, very bad shape. By not removing 'extended period' from the statement, what it is signaling is economic troubles ahead."

Salvaggio said he expects dollar selling and the rally in risky assets to be short-lived.

(Additional reporting by Wanfeng Zhou) (Editing by Theodore d'Afflisio)