FOREX-Dollar rallies after Fed offers brighter economic view
* Fed says risks to growth, job market have lessened
* Dollar climbs to one-week high against the yen
* Dollar rises to four day high against the euro
(Reuters) - The U.S. dollar reversed early losses to rally sharply against the euro and yen on Wednesday after the Federal Reserve said it sees fewer downside risks to the outlook for the economy and the labor market. The Fed said it would maintain its current $85 billion a month in bond purchases, but Fed Chairman Ben Bernanke said the U.S. central bank expects to slow the pace of the purchases later this year. "The markets are reacting to the more positive economic assessment in the statement, notably the comment that economic risks have diminished," said Vassili Serebriakov, currency strategist, BNP Paribas, New York. "I think it's being seen as a signal that the Fed is close to tapering." Trading was volatile, as had been expected, with the euro initially hitting a session high against the dollar after the announcement before swinging to losses. The euro last traded at $1.3280, down 0.8 percent on the day and well off the session peak of $1.3414. Against the yen, the dollar was at 96.71 yen, up 1.5 percent, with the session peak at 96.93 yen. The dollar's move from low to high on the day exceeded 2 yen. Economists expect interest rates to stay on hold until 2015, but the view in financial markets of when the Fed would tweak policy had shifted forward since comments by Bernanke last month fired up speculation that the central bank could soon curb its asset buying. In fresh quarterly projections, 14 of the 19 members of the Fed's policy-setting committee said they did not think it would be appropriate to raise rates until some time in 2015. The Fed repeated on Wednesday that it will not lift interest rates until unemployment hits 6.5 percent or lower, provided that the outlook for inflation stays under 2.5 percent. The jobless rate was 7.6 percent in May. But in a slight upgrade to their projections, officials forecast unemployment to average 6.5 to 6.8 percent in the fourth quarter of next year, and 5.8 to 6.2 percent in the final three months of 2015. "The forecasts suggested that the unemployment rate will fall to 6.5 percent in 2014, which means that the Fed could hike rates sooner than expected, possibly as early as the first quarter of 2015," said Camilla Sutton, chief currency strategist at Scotia Capital in Toronto. "And that's positive for the U.S. dollar." Earlier in the day ahead of the Fed announcement, the dollar had fallen to a four-month low against major currencies. Speculation that the Fed might begin slowing its pace of asset purchases had triggered a recent selloff in global stocks and sent the safe-haven Japanese yen up more than 5 percent against the dollar so far this month. Those moves were reversed after the announcement. The dollar index, which measures the greenback against a basket of currencies, rose 1 percent and touched a one-week high of 81.489, after earlier hitting a four-month low of 80.498. The euro edged up 0.4 percent to $1.2829 yen. Some $2.11 billion in yen changed hands in the global session and $3.4 billion in euros. The dollar's strength was broadbased with the U.S. currency posting a 1.1 percent gain against the Swiss franc, while sterling fell 1 percent against the dollar. The Australian dollar slid 1.6 percent and was near a three-year low, and the New Zealand dollar fell 1.5 percent .