FOREX-Dollar edges lower with Fed in focus, cryptocurrencies jump

* Focus turns to Fed meeting

* Bitcoin eyes $40,000 after report Amazon to accept it as payment

* Ifo German business climate index falls unexpectedly

* (Adds analyst comments, updates prices, changes dateline to New York from London)

By John McCrank

NEW YORK, July 26 (Reuters) - The dollar edged lower on Monday against a basket of other currencies as investors' focus turned to this week's U.S. Federal Reserve meeting, while cryptocurrency prices rose to their highest in weeks.

The dollar index, which measures the currency against six major peers, slipped 0.38% to 92.536 under pressure from the euro and yen but was still close to last week's 3-1/2-month high of 93.194.

The euro ticked 0.4% higher to $1.1815. German business morale fell unexpectedly in July on continuing supply chain worries and rising coronavirus infections, an Ifo Institute survey showed on Monday.

The yen gained as much as 0.4% to 110.11 yen per dollar. . Sterling gained against the dollar and the euro as coronavirus infections in Britain receded for now.

The greenback has gained nearly 4% since May 25 as an improving U.S. economy bolstered the outlook for the Fed to start paring asset purchases as early as this year.

"With the dollar, you've had a pretty sizable rally," said Mazen Issa, senior FX strategist at TD Securities. "On a short-term cross-asset valuation base, it actually looks to be a bit rich against most of the G10, particularly against currencies that have more hawkish central bank pricing."

The Norwegian crown was up 0.45% against the greenback, while the Canadian dollar gained 0.23%.

The Fed begins a two-day policy meeting on Tuesday, followed by a press conference by Chair Jerome Powell on Wednesday, where investors will by listening for any comments on when tapering of the central bank's asset purchases could begin.

"We expect the Fed to lay the groundwork for an upcoming taper announcement at this meeting, serving to confirm the reality of US monetary policy divergence," analysts at Bank of America said in a note to clients.

But since the Fed met just six weeks ago, what had seemed a blue-sky setting for that debate has become clouded by a quadrupling of daily infections led by the more-contagious Delta variant to levels approaching those seen in last summer's virus surge.

In cryptocurrencies, Bitcoin jumped by as much as 10% to a more than five-week high of $39,850, while ether gained 7.35% to $2,353 after London's City A.M. newspaper cited an un-named insider as saying Amazon is looking to accept bitcoin payments by year-end.

The report followed Twitter boss Jack Dorsey's comment on Friday that the digital currency is a "big part" of the social-media company's future.

(Reporting by John McCrank in New York; additional reporting by Ritvik Carvalho in London; Editing by Barbara Lewis and Steve Orlofsky)