* Euro nurses large losses after ECB's policy decision
* ECB to reduce bond buys, extends timeline
* Steepening of euro zone yield curve seen to weigh on euro
* Dollar rises vs yen on U.S. bond yields gains, firmer
By Shinichi Saoshiro and Yuzuha Oka
TOKYO, Dec 9 The dollar rose broadly on Friday
as U.S. bond yields rose, while the euro sank after the European
Central Bank's decision to extend its debt-buying programme even
as it cut the size of its purchases disappointed currency bulls.
The dollar index gained 0.1 percent to 101.230
following an overnight rise of nearly 1 percent. It was on track
to gain 0.3 percent this week.
The greenback was up 0.4 percent at 114.430 yen,
coming within the reach of a 10-month high of 114.830 set last
The yen's safe-haven appeal has diminished as Japan's Nikkei
hit a one-year peak as Wall Street reached a record
The widening of U.S.-Japan interest rate differentials also
supported the dollar, with the benchmark 10-year Treasury note
yield rising to 2.445 percent.
The Treasury yield edged back towards a 1-1/2-year peak of
2.492 percent scaled last week following a rise in euro zone
debt yields overnight.
Long-dated euro zone bond yields rose and the euro fell on
Thursday after the ECB said it would reduce its monthly asset
buys to 60 billion euros $63.58 billion) as of April, from the
current 80 billion euros, but as it also opted to extend bond
purchases to December from March.
The ECB expanded what it could buy to shorter-dated paper
and also reserved the right to raise the purchase amounts should
the economic outlook sour.
"The reduction in purchases initially came as a surprise to
the market as we first thought it was policy tapering," said
Ayako Sera, market economist at Sumitomo Mitsui Trust Bank in
"But ECB showed after all that it is willing to ease for a
longer term, expanding what it could buy."
The euro dropped 0.2 percent to $1.05920, after
falling 1.3 percent overnight, the biggest intraday loss since
It had briefly risen to a near 1-month peak of $1.0875 on
Thursday in an initial reaction to the ECB before pulling back
as the markets concluded that more significant policy tapering
remained further down the horizon.
"The drop in short-end German bund yields following the ECB
announcement dragged down the euro by widening the spread with
U.S. yields," said Shin Kadota, chief Japan FX strategist at
Barclays in Tokyo.
"It was not just the perceived lack of a strong tapering
message, but such technical factors also weighed on the euro."
The 2-year German bund yield sank on Thursday
while the 10-year bund yield rose as long-dated
debt were sold on the ECB's decision to reduce the buying amount
while widening the overall maturity range of its purchases.
"There is no doubt that ECB monetary policy is firmly
focused on securing a recovery in inflation towards target and,
whilst not a policy tool, a weaker exchange rate would be
helpful in that regard. Our forecasts assume that EUR/USD will
move towards parity in coming months," wrote Brian Martin, head
of global economics at ANZ.
With the ECB meeting out of the way, attention has turned to
the Federal Reserve.
The possibility of the Fed hiking interest rates next week
has been almost fully priced in by the market, and the focus is
now on whether the central bank hints at further monetary
tightening in 2017.
Sera at Sumitomo Mitsui Trust Bank said that the markets'
focus will also shift to politics as EU leaders gather for the
European Council next week.
The Australian dollar dipped 0.1 percent to $0.7452
against a broadly higher dollar. The New Zealand dollar was
steady at $0.7173.
($1 = 0.9437 euros)
(Editing by Shri Navaratnam and Kim Coghill)