FOREX-Dollar inches higher ahead of Fed minutes

* Dollar bounces on hawkish comments from Fed's Lockhart, Dudley

* Fed's July meeting minutes eyed for more direction

* Pound awaits UK employment data after rising overnight (New (KOSDAQ: 160550.KQ - news) throughout after the start of European trade)

By Patrick Graham

LONDON, Aug 17 (Reuters) - The dollar extended its recovery against a basket of currencies on Wednesday after bouncing back from 7-week lows against the yen and euro on the back of hawkish comments from a pair of Federal Reserve officials in the previous session.

Dealers said some of the weaker dollar trades that dominated the past week had been blown out by New York Fed chief William Dudley and Atlanta (BSE: 532759.BO - news) colleague Dennis Lockhart's warnings that the U.S (Other OTC: UBGXF - news) . central bank could still raise interest rates in September.

That ran in contrast to an academic paper by San Francisco Fed chief John Williams which provoked dollar selling on Monday and earlier on Tuesday.

All eyes are now on minutes from the Fed's last meeting, due later on Wednesday, for some clarity on how close the bank really is to tightening borrowing costs for the second time since the 2008 financial crash.

"The communication from the Fed has just been all over the place," said Richard Benson, co-head of portfolio investment at currency fund Millennium Global in London.

"The Williams argument is what is priced into markets. Dudley was pretty explicit but I don't think markets really want to believe him."

In early European trade, the dollar gained 0.2 percent on the day against the basket of currencies used to measure its broader strength, having bounced around half a percent on Tuesday.

It was up 0.5 percent at 100.81 yen, having fallen as low as 99.550 yen in the previous session, its lowest since the stormy aftermath of the Brexit referendum on June 24 sent investors scrambling for the perceived security of Japan.

The euro lost 0.1 percent to $1.1261 following an overnight rise to $1.1323, also its highest since June 24.

Downbeat U.S. economic indicators have had the dollar firmly on the defensive over the past week, reducing the chance markets are pricing in of a rise in Fed rates this year.

Lockhart said two hikes in 2016 was a possibility while Dudley warned the bank was edging closer to a rise and could possibly raise rates as soon as September.

Uncertainty over Japanese monetary policy was seen supporting the yen in the medium term. The Bank of Japan, which underwhelmed the markets in July with what many investors deemed were token easing steps, will conduct a comprehensive policy review in September.

"Policy uncertainty has been weighing on Japanese bonds for a while and now the currency market seems to be taking notice as well," said Makoto Noji, a senior strategist at SMBC Nikko Securities in Tokyo.

Data on UK labour markets will be another focus and having got close to July's 31-year lows earlier in the week, sterling was trading almost unchanged at $1.3025.

The Australian and New Zealand dollars, both strong beneficiaries of the dollar selling last week, lost 0.3 percent each to $0.7672 and $0.7260 respectively. (Editing by Raissa Kasolowsky)