* Most markets shut on Wednesday for Christmas * U.S. durable goods data surprises on upside in November * Thin market conditions mute forex response to U.S. data By Lisa Twaronite TOKYO, Dec 25 (Reuters) - The dollar drifted higher on Wednesday in extremely thin trade, with most markets closed for the Christmas holiday, as investors digested upbeat U.S. economic data that validated the Federal Reserve's decision to begin paring its stimulus. "Basically, major currency pairs are moving in a trendless way because of the holiday conditions," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo. Thin trade can sometimes amplify moves and lead to volatility, he added, though he said this appears unlikely, with no major events scheduled for the rest of the week. The dollar gained about 0.2 percent to 104.39 yen, near a five-year high of 104.64 hit on the EBS trading platform on Friday. Market participants cited option-related positions at the 105 yen level, which is the next major resistance for the pair. The euro was slightly higher on the day against its Japanese counterpart at 142.65 yen, not far from a five-year high of 142.90 yen also set last week. Against the dollar, the euro edged down about 0.1 percent to $1.3666, holding above last Friday's two-week low of $1.3625. The dollar index, which tracks the greenback against a basket of major rivals, gained about 0.2 percent to stand at 80.585 , moving back toward last week's two-week high of 80.827. U.S. data on Tuesday showed orders for long-lasting U.S. manufactured goods surged in November and a gauge of planned business spending on capital goods recorded its largest increase in nearly a year, pointing to sustained strength in the economy. While another report on Tuesday showed new home sales slipped in November, sales in October were revised to show the highest pace in more than five years. In addition, house prices rebounded, underscoring the economy's improving fundamentals. U.S. market reaction to the data on Tuesday was subdued, with many market participants already away for the holiday. "Market reaction in normal times would probably be triple what we have seen," Steven Englander, global head of G10 FX strategy at CitiFX, said in a note to clients. The reason, he explained, was that "liquidity and market interest are both close to zero. Thursday should not be much better." Englander cited a small chance that currency markets would catch up to the latest U.S. economic developments on Friday or Monday, but with most investors already focused on 2014, it may be early January before active trading resumes. The Fed announced a week ago that it would pare its monthly purchases of Treasuries and mortgage-backed securities in January by $10 billion, to $75 billion. It offset the stimulus reduction by declaring it would maintain short-term rates near zero "well past the time" that the jobless rate falls below 6.5 percent, especially if inflation expectations remain below target. By contrast, Japan's central bank remains committed to maintain its ultra-loose monetary policy until 2 percent inflation is achieved, a vow repeated by Bank of Japan Governor Haruhiko Kuroda on Wednesday. Japan's consumer inflation is likely to exceed 1 percent in the first half of next year and help heighten inflation expectations in a country mired in deflation for 15 years, Kuroda said in a speech in Tokyo. These divergent outlooks for the two countries' monetary policies will continue to favour the dollar over the yen in the year ahead, many strategists and market participants say. Investors in Asia continued to watch China's interbank market. Rates spiked to their highest level since June this week, partly due to seasonal factors that increase banks' demand for cash near the end of each quarter. On Wednesday, China's short-term money market rates extended their fall as corporate tax refunds deposited to commercial banks helped ease liquidity conditions. A day earlier, China's central bank injected funds through normal channels for the first time in three weeks, but traders warned that conditions remained tense.