SINGAPORE -- Most Asian currencies rose on Wednesday in tandem with stocks ahead of the Fed's policy decision with the Singapore dollar hitting a one-week high as investors covered short positions amid a funding squeeze.

The Singapore dollar gained 0.2 percent to 1.5262 per US dollar as investors rushed to cover a shortfall in local currency funding.

"There is a lot of US dollar selling as the market got squeezed in Singapore dollar cash flows. Those who are short of Singapore dollar cash flows are selling US dollar to get back Singapore dollar," says a trader in Singapore.

Some traders cited the unwinding of a huge Swiss franc/Singapore dollar cross-currency position as being behind the rise in the Singapore dollar.

They said the position seemed to have been forced into deep loss by the Swiss central bank's surprise move last week to buy foreign currencies to fight deflation.

"Market was very short on the Singapore dollar, so there is some position adjustment ahead of the FOMC tonight," said a second trader, referring to the US Federal Open Market Committee, which ends a two-day meeting later on Wednesday.

The anxiety over funding pushed up the cost of overnight Singapore dollar cash for offshore players to as high as 60 percent.

The Federal Reserve is widely expected to keep its interest rate unchanged at 0-0.25 percent, but US Treasuries edged up on speculation that the Fed may take the unorthodox step of buying government debt to push down long-term interest rates.

The Taiwan dollar rose to a fresh one-month high at 34.157 per US dollar, although the currency's upside potential was seen as limited.

Sean Callow, strategist at Westpac, suggested investors should buy the US dollar against Taiwan dollar through non-deliverable forwards as the latter's recent rally was unlikely to be sustained given the island's grim economic outlook.

"We don't see recent global risk appetite being sustained and once the rally stalls, long US dollar/Taiwan dollar through NDFs will be a preferred trade," he said in a note.

The Taiwan dollar has gained 2.7 percent since March 3, helped by a rise in regional stocks off the back of tentative signs of stability in the global financial system.

The South Korean won fell as far as 1,426.4 per dollar as investors took profits on a rally that had lifted the currency nearly 10 percent since March 6, when it hit an 11-year low.

"It's just profit-taking -- too much US dollar selling in the last few days," said a trader in Singapore.