* Euro dips after S&P cuts long-term rating on European Union
* Yen under pressure as BOJ stands pat as expected
* Dollar edges up to fresh 5-year high vs yen
* Aussie wallows near 3-1/2-year low hit after Fed
By Lisa Twaronite
TOKYO, Dec 20 (Reuters) - The dollar remained on a firm footing in Asia on Friday, supported by a rise in U.S. Treasury yields a day after the U.S. Federal Reserve said it would start to cut its bond-buying stimulus, while the euro dipped after Standard & Poor's cut its long-term rating on the European Union.
"In our opinion, the overall creditworthiness of the now 28 European Union (EU) member states has declined," S&P said in a statement as it cut its supranational long-term rating on the European Union to AA-plus from AAA, citing rising tensions on budget negotiations.
The euro was down about 0.2 percent against the dollar at $1.3636, sinking to its session low of $1.3625 after S&P's announcement, its deepest nadir against the dollar since Dec. 5.
The yen stayed under pressure even against the euro after the Bank of Japan held its monetary policy steady, as expected, and also maintained its view that the economy is recovering moderately.
"The yen is a bit weaker, but today's moves are very small, with many people in overseas markets already winding down ahead of the holiday next week," said Ayako Sera, senior market economist at Sumitomo Mitsui Trust Bank.
The greenback was up about 0.2 percent at 104.43 yen after nudging up to a fresh five-year high of 104.60 yen on the EBS trading platform. It last traded at those levels in October 2008.
The euro pared gains but was still slightly up on the day against its Japanese counterpart to buy 142.42 yen, within sight of its five-year high of 142.89 yen struck after the Fed's move this week.
In contrast to what the Fed is doing, nearly two-thirds of Japanese firms expect the BOJ to ease further in the first six months of 2014, as it tries to achieve 2 percent inflation within two years, a Reuters poll showed earlier this month.
Citi's Japan economics team expects the BOJ to opt for additional quantitative easing measures in June or July next year. The dollar is seen reaching an upside target of 108 yen around the same time as the BOJ's steps, they said in a research note.
Meanwhile, rising U.S. Treasury yields gave the dollar a lift, with the benchmark 10-year yield rising to a three-month peak of 2.9512 percent.
The dollar is likely to keep benefiting from this, as well as the Fed's eventual steps to tighten once its tapering is complete.
"Combined with solid economic growth, we expect the Fed to begin raising rates in mid-2015, earlier than it currently anticipates," strategists at Barclays said in a note to clients.
Markets are likely to price in the likelihood of higher U.S. interest rates much sooner, they added, and "the normalisation of the U.S. rates curve should add to USD gains."
The Australian dollar took back some lost ground but still wallowed not far from a 3-1/2-year low hit after the Fed revealed its stimulus reduction plans.
The Aussie fell as far as $0.8820, its lowest since August 2010, but was last slightly higher on the day at$0.8872.