* Dollar inches up ahead of Fed meeting
* Yuan weakens further after China launches trade-weighted index
* Aussie up on stronger Chinese data
By Jemima Kelly
LONDON, Dec 14 (Reuters) - The dollar inched up against a basket of major rivals on Monday, with most major currencies rangebound as investors focused on the prospect that this week will bring the first rise in U.S. interest rates in almost a decade.
China's yuan hit a 4-1/2-year low in onshore trading after the country's central bank again lowered the yuan midpoint rate. That followed Friday's announcement of a new trade-weighted index, which some viewed as a green light for further devaluation of the currency.
The U.S. Federal Reserve's two-day policy meeting will conclude on Wednesday, and the main question for investors will be how quickly the Fed will try to normalise monetary policy going forward.
RBC Capital Markets currency strategist Adam Cole, in London, said that markets were underestimating the pace of further interest rate rises, and that he expected four more hikes in 2016.
"I'd rather be long the dollar than short this week," he said. "We think that a rate hike is pretty much a foregone conclusion but the commentary that goes with it is likely to be slightly less dovish than some are expecting."
"This notion of a dovish hike is a little bit misguided, we think, and relative to those expectations (the Fed meeting) is likely to be dollar positive," he added.
The dollar index was 0.3 percent up from late Friday levels, at 97.874. That still left it some way off a 12-1/2-year high hit at the start of the month.
China late on Friday surprised some by shifting the way it values the yuan, or renminbi, with its new trade-weighted yuan exchange rate index. Beijing said it was to discourage investors from exclusively tracking the currency's fluctuations against the greenback.
"While some will see this as cover for currency devaluation, we suspect the goal is to keep the renminbi's value broadly stable rather than be compelled to have it follow the dollar higher, as it has over the past couple of years," said Mark Williams, chief Asia economist at Capital Economics.
Encouraging Chinese data released on Saturday, showing factory output growth hitting a five-month high, put a small spring in the Australian dollar's step. The Aussie, often used as a liquid proxy for China plays, traded 0.4 percent higher at $0.7211.
(Additional reporting by Lisa Twaronite in Tokyto and Ian Chua in Sydney; Editing by Catherine Evans)