* Fed to hold rates near zero long after economy strengthens
* But Fed's forecast, Yellen remarks hint rate hikes sooner
* Fed widely expected to pare bond purchases by $10 billion
* Five-year yield set for biggest one-day spike since July
(Updates throughout, adds quote) NEW YORK, March 19 (Reuters) - U.S. government debt prices sank on Wednesday on the perception that Federal Reserve policy-makers will start raising interest rates sooner than expected. Speaking at a press conference after the Fed's two day policy meeting, Fed Chair Janet Yellen spooked traders saying around six months after its current asset purchase program ends might be a "considerable period" when it might raise rates. Fears that the Federal Open Market Committee might move away from its near-zero rate policy sooner than some traders had previously thought unleashed a wave of selling. Short-dated and intermediate Treasuries suffered the biggest losses since they are seen most vulnerable to a swifter change in Fed policy. "The Fed moved the goal post again," said David Molnar, partner and managing director at HighTower San Diego. "You are seeing pressure on bonds and rate-sensitive sectors." The Fed, as expected, reduced its monthly purchases of Treasuries and mortgage-backed securities by $10 billion to $55 billion, keeping it on course to end its third round of quantitative easing late this year. In its latest policy statement, the FOMC dropped a set of guideposts it was using to communicate publicly when it would increase its target on the federal funds rate. This overnight cost on interbank borrowing has been near zero since December 2008. The group also scrapped the promise to hold rates at rockbottom levels "well past the time" the jobless rate falls below 6.5 percent. The move did not indicate any change in its policy intentions. The intended tone of the FOMC statement was undermined by the forecasts of individual policy-makers, which collectively showed the unemployment rate might fall faster than they had earlier projected in December. Moreover, 13 Fed officials preferred the first rate hike in 2015, compared with 12 in December. Benchmark 10-year Treasuries notes last traded 26/32 lower in price to yield 2.773 percent, up 9 basis points from late on Tuesday. The five-year note tumbled 25/32 in price with its yield surging 16 basis points, the largest one-day rise since July 2013, to 1.712 percent.
(Reporting by Richard Leong; Editing by Meredith Mazzilli and Diane Craft)