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

* Fed to keep rates low for "extended period"

* Investors remain cautious about U.S. outlook

* U.S. service sector rises in October, but below forecast

* U.S. private sector jobs data weaker than expected. (Updates prices, adds details, fresh comment)

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

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

"Risk on, on, on," said David Watt, senior currency strategist, at RBC Capital Markets in Toronto.

"Though there are still some indications that the risk backdrop remains dicier than it has in months, such concerns have been steamrolled by a rally in risk and a renewed spell of aversion to the dollar linked to the fact that the Fed will continue to leave the pedal to the metal 'for an extended period.'"

But investors, on the whole, remained cautious about selling the dollar too aggressively. The Fed said in its statement that while economic activity has picked up, consumer spending remained constrained by job losses and tight credit.

Greg Salvaggio, senior vice president for capital markets at Tempus Consulting in Washington, noted the uncertainty as well. "The catch to this is that 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 that (there are) economic troubles ahead."

The Fed also said it has decided to reduce the size of its agency debt purchases to $175 billion from the previously announced $200 billion.

Analysts said this should not be interpreted as part of an exit strategy, as the central bank said the decision was made because there was "limited availability" of agency debt in the secondary market.

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

In late trading, the euro rose as high $1.4908, but came all the way down to $1.4828. It was last at $1.4871, up more than 1.0 percent on the day.

ISM, ADP REPORTS

The dollar earlier hit a session low versus the euro after a report showing the U.S. service sector grew in October for the second consecutive month. The data further helped U.S. stocks extend gains. [ID:nN042167]

"Investors are probably looking at the increase in new orders, which is a leading indicator for economic activity," said Jacob Oubina, currency strategist at Forex.com in Bedminster, New Jersey. "Also, export orders increased, which suggests that dollar weakness is helping boost exports. That's a welcome sign for the economy."

But overall, Oubina said, the report was mixed and "the most worrisome" part is the drop in the employment index, which "doesn't bode well for Friday's nonfarm payrolls report."

Adding to uncertainty about the non-farm payrolls number was an earlier survey showing U.S. private employers shed 203,000 jobs in October, which was fewer than the 227,000 jobs lost in September but more than the 190,000 expected by analysts in a Reuters poll [ID:nN04545735].

The ICE Futures U.S. dollar index , which measures the dollar's value against a basket of six other major currencies, fell 0.9 percent for the day to 75.702. That was a retreat from Tuesday's one-month high of 76.817.

Against the yen, the dollar was up 0.4 percent at 90.63 yen.

Commodity currencies such as the Australian and New Zealand dollars gained as gold prices hit a record high near $1,100 an ounce and oil rose above $80 a barrel .

The Australian dollar rose 0.8 percent to US$0.9106 , erasing an earlier drop following an unexpected slide in Australian September retail sales. The New Zealand dollar was also up 0.9 percent at US$0.7269 .

Sterling rallied 0.9 percent as well to $1.6566 even as wary investors await a UK policy decision on Thursday, which could see the Bank of England increasing asset purchases. [BOE/INT]

The European Central Bank will also make an interest-rate announcement on Thursday.

(Additional reporting by Wanfeng Zhou. Editing by Chizu Nomiyama)