* Euro supported by expectations of bold ECB action * Risk of disappointment limits gains * ISM numbers could sway U.S. dollar By Anirban Nag LONDON, Sept 4 (Reuters) - The euro hovered near a two-month high against the dollar on Tuesday on optimism the European Central Bank will unveil steps to tackle the region's debt crisis this week, although concerns the plan may lack detail checked gains. The cost of insuring against a Spanish and Italian default fell, lending some support to the euro. Analysts say it is likely to hold its ground in the run-up to the ECB meeting on Thursday, at which policymakers are expected to announce a bond-buying scheme to help lower Spanish and Italian borrowing costs. That speculation was reinforced on Monday when ECB President Mario Draghi said central bank purchases of sovereign bonds of up to three years maturity did not constitute state aid. . Any move by the ECB to stem the debt crisis would lower the risk premia - the additional cost over low-risk securities - of holding European assets as well as the euro. The euro was flat on the day at $1.2590, not far from two-month high of $1.26378 hit last week on trading platform EBS. Traders cited decent support around its 100-and 200-hour moving averages of $1.2545-57, with option expiries at $1.2550 likely to sway trade. Analysts said with expectations of ECB action running high there was some scope for disappointment which could see the euro fall after the meeting. Investors are hoping that the ECB will at least reveal the range of tenors that are eligible for purchase and conditions are not too stiff for peripheral countries to request help. "There is room for disappointment if the plan lacks specifics and that could see the euro drop towards $1.25," said Chris Turner, head of currency strategy at ING. "But I think the ECB is intent to get a floor under this debt crisis saga and it is aware of the high expectations." Morgan Stanley strategists said they did not expect the euro to push much higher before the ECB meeting and would take profit at their $1.27 target if it was achieved before Thursday. Additionally investors are likely to be cautious about the euro given the economy is struggling, putting pressure on the ECB to lower interest rates in the coming months. FED EASING PROSPECTS Euro weakness against the dollar could be limited in the near term, however, by speculation the U.S. Federal Reserve may launch another bond buying programme, known as quantitative easing (QE), later this month. Investors are likely to use U.S. non-farm payrolls data due on Friday to help gauge the strength of the economy and the likelihood of further easing. Before that, the U.S. Institute for Supply Management's manufacturing data is due on Tuesday and it could support speculation of a Fed move if it reflects similar surveys out of Europe and Asia on Monday that showed factory activity slowing around the world. "Dollar bears may find further support from the August manufacturing ISM," said Audrey Childe-Freeman, head of foreign exchange strategy. "Bearing in mind disappointing manufacturing PMIs elsewhere, the risk has to be tilted to the downside. A sub-50.00 outcome and associated contraction talks would most likely keep QE3 talks alive and leave the dollar vulnerable." The dollar was, however, firmer against the yen helped in part by buying from Japanese importers. The U.S. dollar was up 0.2 percent against the yen at 78.40 yen. Meanwhile, the Australian dollar edged higher after Australia's central bank kept interest rates unchanged at 3.5 percent as widely expected. But it gave up some of those gains as global stock markets fell. The growth-linked Aussie was last flat at $1.0240, up from a low of $1.0224 hit earlier on Tuesday, its lowest in nearly six weeks.

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