* Dollar hits five-year high vs yen then slips back
* Markets reassured by Fed message on interest rates
* Australian dollar near 3-1/2-year lows
NEW YORK, Dec 19 (Reuters) - The dollar traded near a five-year high against the yen on Thursday, a day after the Federal Reserve announced it would begin to gradually wind down its massive bond-buying program from January.
The dollar had rallied broadly on Wednesday after the Fed said it would reduce its monthly asset purchases by $10 billion, bringing them down to $75 billion. A reduction in Fed stimulus would help lift U.S. bond yields and buoy the currency.
But in a move to forestall any sharp market reaction, the Fed also said it would likely "be appropriate" to keep overnight rates near zero "well past the time" that the U.S. jobless rate falls below 6.5 percent - effectively extending the timeline for beginning to raise base interest rates.
"Net-net, the Fed's announcement yesterday was hawkish, not dovish," said Stephen Jen, co-founder of London-based investment firm SLJ Macro Partners.
"The dollar should continue to appreciate, and its strength is likely to broaden out over time, as long as the US economy continues to recover," he said.
The dollar jumped to a five-year high against the yen of 104.36 yen, according to Reuters data, before retreating to 104.12, down 0.1 percent on the day.
The dollar slipped against the yen after data showed the number of Americans filing new claims for unemployment benefits rose last week to the highest in nearly nine months, casting a shadow on the labor market.
Other reports showed U.S. home resales at a near one-year low in November and a slight pick-up in factory activity in the mid-Atlantic region in December.
Analysts said the actual reduction in the Fed's monthly asset purchases was minimal - $10 billion - and they remain at a staggering $75 billion a month in extra dollars that are coursing through global markets.
The euro hit its lowest in almost two weeks at $1.3648 and last traded at $1.3659, down 0.2 percent.
Losses in the euro should be limited after the European Central Bank's rejection of short-term moves to ease monetary policy and the repayment of loans to the ECB by banks, which has squeezed the volume of available euros.
Data showing the euro zone current account surplus hit a record high in October also helped support the currency.
Implied volatility in euro/dollar options fell sharply on Thursday. One-month implied volatility, a gauge of how sharp a currency move will be, fell to 6.1 percent from as much as 6.8 percent on Wednesday.
This implies the currency will trade within a range in the coming month.
The Australian dollar, already under pressure because of the central bank's desire to see it weaken, hovered near a 3-1/2-year low in the wake of the Fed's announcement.
The Aussie fell as far as $0.8820, its lowest since August 2010, and was last at $0.8854, down 0.1 percent.