FOREX-Dollar slips on Yellen's dovish stance, pound hits 4-1/2-year high
* Yellen stresses need for interest rates to stay low
* Upbeat U.S. regional Fed data pare dollar's losses
* Sterling reaches near 4-1/2-year high vs greenback
* Trading slows ahead of Easter holidays (Updates market action, adds quote, changes byline, dateline, previous LONDON)
NEW YORK, April 17 (Reuters) - The U.S. dollar slipped against a basket of currencies on Thursday after Federal Reserve Chair Janet Yellen said low interest rates are needed to support the U.S. economy even though such a policy stand hurts its currency.
Dollar weakness helped propel sterling to its highest against the U.S. currency since late 2009 as investors continued to price in expectations for a Bank of England rate hike in the first quarter of 2015 after strong jobs and wages data on Wednesday.
The greenback also lost ground against the euro and the yen on dwindling trading volume in advance of the Easter holiday. It trimmed earlier losses against those currencies after a stronger-than-expected reading from the Philadelphia Federal Reserve on business activity in the U.S. Mid-Atlantic region.
Sterling's trade-weighted index hit a 5-1/2-year high in the European session, up 1.8 percent on the year before easing in early U.S. trading.
In her second public speech as the head of the U.S. central bank on Wednesday, Yellen stressed the need for accommodative policy, citing the current anemic pace of price growth as more of an economic threat than the risk of rising long-term inflation.
Her dovish remarks overshadowed data suggesting that the U.S. economy was regaining momentum. Thursday's data showed domestic jobless claims held near pre-recession levels. They followed Wednesday's data that indicated U.S. factory output rose solidly in March and the Fed's Beige Book report showed economic activity picked up in recent weeks.
This latest evidence, however, was not robust enough to override Yellen's rhetoric on low interest rates, analysts said.
"The data are not strong enough to push back the dovish stand," said Sebastien Galy, currency strategist at Societe Generale in New York.
The dollar index dipped 0.1 percent to 79.700 after hitting a session low of 79.581. The greenback dipped 0.1 percent versus the euro at $1.3821 and was little changed against the yen at 102.22 yen.
Sterling was up 0.1 percent at $1.6806, after hitting its highest since late 2009 at $1.6842.
Meanwhile, the Russian rouble improved for a second day against the dollar as violence intensified in East Ukraine even though Ukrainian, Russian and Western diplomats sought to resolve the crisis.
The rouble last traded up 0.9 percent versus the greenback at 35.72 roubles.
Volumes are expected to fade in advance of the Easter holiday. London, which has the biggest share of daily global currency trading, will be shut on Friday and Monday, while U.S. financial markets will be closed on Friday. Markets in Tokyo will be open.
Nevertheless, according to data from Reuters Matching, trading in dollar/yen was well above its one-month average.
Some investors apparently used comments by Bank of Japan Governor Haruhiko Kuroda as an excuse to buy back yen, even though his remarks contained nothing new, Ayako Sera, senior market economist at Sumitomo Mitsui Trust Bank, said.
The central bank chief said the BoJ would adjust monetary policy when needed but said nothing to indicate that more easing steps would be forthcoming any time soon.
"There is potential for another leg lower in the correction witnessed since the beginning of the year, in our view. We look to sell rebounds towards the 102.50 yen area, with a move below 101.50 yen triggering a renewed bearish signal for dollar/yen," Morgan Stanley analysts said in a note.
The euro, though, edged 0.1 percent higher against the yen to 141.42 yen and held firm against the dollar with some of its gains linked to demand for an Italian bond from overseas investors, traders said. (Additional reporting by Anirban Nag in London and Lisa Twaronite in Tokyo; Editing by James Dalgleish)