* Fed says likely to end bond-buying by mid-2014
* Traders reestablish bets on dollar gains
* Australian dollar slides to 33-month low versus dollar
By Wanfeng Zhou
NEW YORK, June 20 (Reuters) - The U.S. dollar rallied against major currencies on Thursday and looked set to extend gains after the Federal Reserve signaled it would begin withdrawing stimulus this year as the U.S. economy improves.
Investors re-established bullish bets on the dollar after Fed Chairman Ben Bernanke, following the central bank’s two-day policy meeting that concluded on Wednesday, said the Fed was likely to end its bond-buying program by mid-next year.
“To the extent that QE represented a drag on the currency, I think that the prospect of less QE (and) higher interest rates is something that should help the dollar, particularly in an environment where some other central banks are still moving in the other direction,” said Robert Lynch, senior currency strategist at HSBC in New York.
Benchmark U.S. Treasuries yields rose to their highest levels in almost two years after the Fed. Traders of short-term U.S. interest rate futures now expect the Fed to begin lifting its target for short-term borrowing costs in late 2014.
Analysts said the dollar’s resurgence could put an end to the recent resilience of the euro, potentially pushing it below $1.30 as markets become wary about the prospect of lower European Central Bank interest rates.
“The U.S. growth story is still the most convincing in G4,” said Valentin Marinov, currency strategist at Citigroup in London. G4 economies refer to the United States, euro zone, Japan and Britain.
“$1.30 could be on the cards for euro/dollar heading into the ECB meeting on July 4.”
The euro fell 0.7 percent to $1.3204, with sentiment hurt by surveys showing the euro zone private sector has yet to make a steady recovery.
A break below the June 10 low of $1.3176 could leave the euro poised to drop towards chart support at the 100-day moving average at $1.3094 and the 200-day average at $1.3072.
Analysts at Westpac said they added a short euro position to their portfolio and would add more on any rebound to $1.3350.
The dollar rose 1.3 percent to 97.69 yen, having hit 98.28 yen, according to Reuters data, its strongest in more than a week. Some analysts forecast a rise back above 100 yen due to the contrast between the U.S. monetary policy outlook and aggressive easing in Japan.
The dollar slightly trimmed gains after data showed the number of Americans filing new claims for unemployment benefits rose more than expected last week, although not enough to signal a material shift from the recent pace of moderate job growth.
The dollar index, which measures dollar performance against a basket of currencies, hit a 10-day peak of 82.053 and was last up 0.6 percent.
The dollar broke away from the pattern over recent weeks in which it often fell against the yen in tandem with share prices. European shares were last down more than 2 percent. Japan’s Nikkei ended down 1.7 percent.
The Australian dollar was among the worst performers against the U.S. dollar, hitting a 33-month low as it tracked steep falls in riskier and emerging currencies. It hit a low of $0.9162, also hurt by data showing China’s manufacturing sector weakened in June to a nine-month low.
Morgan Stanley analysts said the Australian dollar was the most vulnerable major currency and that they would look to sell rebounds to $0.9330, targeting a deeper decline towards $0.8500.