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The dollar traded 0.2 percent from its weakest level in a month against the euro after the Federal Reserve extended its pledge to keep interest rates low until late 2014.

The yen held a three-day loss against the 17-nation euro as Asian stocks extended gains in U.S. equities, reducing demand for haven assets. Demand for Europe’s common currency was limited as talks on a Greek debt-swap plan resume today. New Zealand’s dollar remained higher even after the nation’s central bank held its target interest rate at a record low.

“The Fed’s pledge for a prolonged easing of monetary policy boosted risk-on sentiment,” said Kengo Suzuki, manager of the foreign-bond department in Tokyo at Mizuho Securities Co., a unit of Japan’s third-biggest listed bank by market value. “Dollar selling is likely to continue across the board, and the bias is for the yen to be weaker too.”

The dollar traded at $1.3098 per euro as of 10:37 a.m. in Tokyo from $1.3106 in New York yesterday, when it dropped to $1.3121, the lowest level since Dec. 21. Japan’s currency slid to 101.98 per euro, the weakest since Dec. 26, before trading little changed at 101.90. The yen was unchanged at 77.78 against the dollar from yesterday, when it reached 78.28, the weakest since Nov. 29.

The MSCI Asia Pacific Index (MXAP) of stocks rose 0.8 percent following a 0.9 percent advance in the Standard & Poor’s 500 Index yesterday.

Fed Pledge
Economic conditions will likely “warrant exceptionally low levels for the federal funds rate at least through late 2014,” the Federal Open Market Committee said in a statement released in Washington yesterday. The Fed had previously pledged to keep its rate target in place until mid-2013.

The central bank also lowered its forecast for economic growth this year to a range of 2.2 percent to 2.7 percent, down from a projection of 2.5 percent to 2.9 percent in November. It predicted an expansion next year of 2.8 percent to 3.2 percent, down from a previous projection of 3.0 percent to 3.5 percent.

U.S. gross domestic product increased at a 3 percent annual rate in the fourth quarter, according to the median forecast of economists in a Bloomberg News survey before the Commerce Department’s releases the data tomorrow. That compares with a 1.8 percent advance in the previous three-month period.

“The Fed was more dovish than the markets had thought, given that recent data have been suggesting the U.S. economy is recovering at a modest pace,” said Mizuho’s Suzuki.

The euro halted a three-day advance amid concern European leaders will struggle to reach an agreement on reducing Greece’s debt burden as a means to stem the region’s sovereign crisis. Charles Dallara and Jean Lemierre, negotiating on behalf of private creditors, return to Athens today after European finance ministers insisted bondholders take bigger losses on their Greek debt.

Greek Debt Swap
While the International Monetary Fund suggested that public holders of Greek bonds might also have to increase support, the European Central Bank sees this as potentially damaging to confidence in the institution, according to two people familiar with the Governing Council’s stance, who declined to be identified because the matter is confidential.

“The bondholders seem to be splitting hairs about taking a big loss or a bigger loss,” said Andrew Wilkinson, chief economic strategist at Miller Tabak in New York. “That is bringing on another wave of nervousness to the market.”

New Zealand’s dollar remained higher versus its U.S. counterpart even after the Reserve Bank of New Zealand Governor Alan Bollard said it is “prudent” for the central bank to keep interest rates at record low 2.5 percent.

“The RBNZ’s latest post-meeting statement was met with indifference,” Ray Attrill, a senior currency strategist at BNP Paribas SA in New York, wrote in a research note today. The so- called kiwi dollar is “free to fly again” with the passing of “event risk,” he said.

New Zealand’s dollar added 0.1 percent to 81.74 U.S. cents and fetched 63.57 yen from 63.53. Australia’s dollar traded at $1.0608 from $1.0597. It was at 82.52 yen from 82.43 yen.