October 27, 2017 / 2:50 AM / a year ago

FOREX-Dollar buoyant after ECB sends euro to 3-month lows

* Euro skids after ECB prolongs its bond buying

* Investors continue to focus on next Fed chief (Adds detail and quotes, updates prices)

By Lisa Twaronite and Shinichi Saoshiro

TOKYO, Oct 27 (Reuters) - The dollar stood tall on Friday, on track for weekly gains, while the euro slumped to three-month lows after the European Central Bank extended its bond purchases and reduced the chances that it would hike interest rates in 2018.

The ECB prolonged its bond buying programme by nine months to September 2018, and left the door open to keep buying after that. It said it would begin paring its monthly purchases by half to 30 billion euros ($34.90 billion) starting in January.

ECB chief Mario Draghi said “an ample degree of monetary stimulus remains necessary”, as inflation has yet to show signs of a sustained upward trend.

The euro was down 0.15 percent at $1.1633 after touching $1.1624, its lowest level since July 26. It was down 1.3 percent for the week.

The common currency slumped against the greenback as the ECB’s cautious approach highlighted the difference between the Federal Reserve, which is poised to raise rates in December as it continues to normalise monetary policy.

“The ECB’s decision appears like a limited deal, in which it restricted itself to curbing the amount of its bond purchases,” said Koji Fukaya, president at FPG Securities in Tokyo.

“This is in sharp contrast to the Fed, which is moving steadily as scheduled towards the normalisation of policy. The euro looks headed for further losses under such conditions.”

The dollar index, which tracks the greenback against a basket of six major rivals, added 0.2 percent to 94.800, trading at three-month highs and on track for a weekly gain of 1.1 percent.

“The concept of tapering would be removal of accommodation, so it wasn’t exactly what the market was expecting - it was a dovish form of tapering, as there was both an extension and a reduction,” said Bill Northey, chief investment officer at the private client group of U.S. Bank in Helena, Montana.

The ECB’s extension pushes “any potential rate hike to 2019”, he said.

Also underpinning the dollar, the U.S. House of Representatives voted on Thursday to clear a procedural path for a Republican tax bill.

“We did see some additional progress toward tax cuts,” Northey said. “As we move into 2018, the likelihood that something will pass increases.”

Investor attention remains on candidates to head the U.S. Federal Reserve when current chief Janet Yellen’s term expires in February.

Trump’s search for the next central bank chair has come down to Fed Governor Jerome Powell and Stanford University economist John Taylor, Politico on Thursday cited one source as saying, while another counselled caution. But a White House official told Reuters that no final decision has been made.

Trump is expected to announce his candidate before his upcoming trip to Asia in early November.

The dollar gained 0.15 percent to 114.155 yen, within sight of this week’s three-month high of 114.245 touched on Wednesday. It was up 0.5 percent for the week.

The greenback’s rise against the yen was limited as the Japanese currency rallied against the euro.

The euro fetched 132.840 yen after going as low at 132.590, its weakest in eight days. The common currency dropped 1.2 percent against the yen overnight.

The yen showed little reaction to Friday’s data revealing Japan’s core consumer prices rose 0.7 percent in September from a year earlier to mark a ninth straight rising month.

Sterling slipped 0.3 percent to $1.3124,with investors focused on whether the Bank of England will proceed with its first interest rate increase in more than a decade after its next meeting on Nov. 2. ($1 = 0.8597 euros)

Reporting by Lisa Twaronite and Shinichi Saoshiro; Editing by Joseph Radford and Eric Meijer

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