FOREX-Dollar extends broad slide to 5-month low after Fed
* Dollar index drops to lowest in almost 5 months
* Sterling rises to highest in more than 6 mths above $1.5800
* Dollar falls to 2-month low vs yen
* Fed says it considered buying more securities
TOKYO, May 21 (Reuters) - The dollar fell to its lowest in almost five months against a basket of currencies on Thursday, extending a slide made the previous day after the Federal Reserve said it had considered buying more securities at its last policy meeting.
The dollar hit a more than six-month low versus the the pound and a two-month trough against the yen as such an increase in the Fed's purchases of mortgage agency and government securities would inject more dollars into the global financial system.
"The Fed said exactly what the market wanted to hear so it could sell the dollar, although it's too early to say whether it's a decisive trend that will hurt the dollar," said a portfolio manager at a Japanese asset management firm.
"The dollar's current drop comes as fears ease about credit and dollar funding, but traders are watching if the focus shifts to a decrease in the value of the dollar expected to come sooner or later," the manager said.
The dollar had rallied against a basket of currencies as investors rushed to secure cash in dollars during the height of the financial crisis, climbing to a two-year peak in March.
But the dollar index, a gauge of the greenback's performance against six major currencies, retreated to as low as 80.897 on Thursday, its lowest since early January.
Sterling rose as high as $1.5817, its highest since early November, before retreating to $1.5805 GBP=D4, up 0.4 percent from late New York trade on Wednesday.
The euro was up 0.1 percent at $1.3795 EUR=, staying near Wednesday's high of $1.3831 on trading platform EBS, its highest since early January.
The dollar fell as low as 94.28 yen on trading platform EBS, its lowest since March, before rebounding slightly to 94.50 yen JPY=, down 0.4 percent. The euro fell 0.3 percent to 130.32 yen EURJPY=R.
"Dollar/yen is simply catching up other currency pairs in a broad dollar selling. A fall in U.S. Treasury yields the previous day is also encouraging the dollar's drop against the yen," said Hideaki Inoue, chief manager of forex trading at Mitsubishi UFJ Trust Bank.
U.S. Treasuries rallied on Wednesday after the release of the minutes from the Fed policy meeting. [ID:nN20492043]
Benchmark 10-year Treasury yields faced downward pressure around 3.19 percent US10YT=RR after falling about 6 basis points the previous day. [US/] Bond yields moves inversely to their prices.
The Bank of Japan begins a two-day policy board meeting on Thursday. But traders said the event is unlikely to have much impact because the central bank is widely expected to keep its interest rates near zero. [ID:nT231186] (Editing by Chris Gallagher)
