* Dollar touches 11-month high vs yen; BOJ easing seen * Fed's upgraded outlook reduces expectations of more easing By Julie Haviv NEW YORK, March 14 (Reuters) - The dollar hit an 11-month high against the yen and a one-month peak versus the euro on Wednesday in a continued afterglow a day after the Federal Reserve upgraded its economic outlook amid a stream of U.S. data signaling a sustainable recovery. Yields have been a primary driver of the dollar strength. A rise in the yield on U.S. two-year Treasury to around a 7-1/2-month high has made the dollar more attractive as a buy-and-hold asset instead of as a currency to fund investments in higher-yielding assets elsewhere. Jens Nordvig, global head of FX strategy at Nomura Securities in New York, said the European Central Banks's long-term cash injections into European banks via cheap loans has also changed the euro/dollar trading dynamics. "In a way, the euro is the new dollar, with potential to become the favorite funding currency in global capital markets," he said. The improving outlook for the U.S. economy, driving expectations that the Fed will be less likely to launch another round of bond-buying, is in marked contrast to the euro zone and Japan, where struggling economies make further easing by the European Central Bank and the Bank of Japan measures more likely. The euro fell to a one-month low of $1.3008 after triggering stop-loss orders below support at $1.3054, around the 50 percent retracement of a Jan. 16-Feb. 24 rally. It was last at $1.3018, down 0.4 percent for the day. Further support for the euro loomed at the next major trough on daily charts at the Feb. 16 low of $1.2973. "We suspect that EUR/USD could continue to follow closely the tightening German-U.S. bond yield spread," said Valentin Marinov, currency strategist at CitiFX, a division of Citigroup, in London. "Deep and protracted recession in the euro zone seems likely to keep the ECB in an accommodative mode for now." "At the same time, the nascent recovery in the U.S. seems to have muted to a degree the Fed's urge to accommodate further." The Fed's policy-setting Federal Open Market Committee on Tuesday slightly upgraded its outlook, saying it expects "moderate" growth over coming quarters and a gradual decline in the unemployment rate, although it said the jobless rate remained elevated. Further boosting dollar sentiment was the Fed's announcement on Tuesday that most of the largest U.S. banks passed its stress tests, a key measure of the health of the country's banks, bolstering strong gains on most stock exchanges. DOLLAR GAINS VERSUS YEN The dollar was also boosted against the yen on recent monetary easing steps by the Bank of Japan and Japan's record trading deficit, powered by demand for fossil fuels. The dollar rose as high as 83.83 yen, its highest since mid-April last year. Traders said Japanese exporters were reluctant to sell the dollar and anticipated further strength. The dollar has advanced nearly 9 percent against the yen in 2012 to date, and analysts are raising their forecasts. The dollar was last at 83.72 yen, up 1 percent. "We have revised our dollar/yen forecast up to 90 in six months and think it will stay there until 12 months from now," said Raghav Subbarao, currency strategist at Barclays Capital in London. Barclays' previous forecasts were for dollar/yen to be at 82 yen in six months and 84 yen in a year. Meanwhile, the euro zone common currency strengthened against the Swiss franc, rising to a peak of 1.2146 francs , its highest since Jan. 10, ahead of a Swiss National Bank rate decision on Thursday. Although economists polled by Reuters expect the SNB to stick to its euro/Swiss floor at 1.20 francs and keep interest rates at zero, there have been calls for the bank to raise the floor. The euro was last at 1.2114 francs, up 0.3 percent.