* 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
By Shinichi Saoshiro
TOKYO, Dec 9 (Reuters) - The dollar held large gains against the yen and euro early on Friday, given a lift after the common currency slumped overnight following the European Central Bank’s decision to extend its debt-buying programme even as it cut the amount of purchases.
The ECB said Thursday it would reduce its monthly asset buys to 60 billion euros as of April, from the current 80 billion euros. The euro briefly rose to a near 1-month peak as the move was seen as a form of policy tapering.
But the common currency quickly retraced its gains as the central bank’s decision to extend bond purchases to December from March and expanded what it could buy to shorter-dated paper. That nullified any lift from the reduction of its debt buying amount.
The ECB also said it reserved the right to increase the size of purchases again.
The euro stood little changed at $1.0616 following its brief surge to the overnight near 1-month high of $1.0875. It fell 1.3 percent on Thursday, the biggest intraday loss since late June.
“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.
The dollar was firm at 114.070 yen after going as low as 113.120 on Thursday prior to the ECB decision.
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 of further monetary tightening in 2017.
The dollar index was steady at 101.100 following an overnight rise of nearly 1 percent. It was on track to gain 0.3 percent this week.
The Australian dollar was little changed at $0.7458 after losing about 0.3 percent overnight against a broadly higher dollar.
Editing by Shri Navaratnam