* Fed says can start to slow stimulus this year
* Euro falters as euro zone data shows recovery still some way off
* Dollar gains vs yen despite fall in equity prices
* U.S. Treasury yields soar, hitting high-yielding currencies
By Anooja Debnath
LONDON, June 20 (Reuters) - The dollar rose on Thursday as global asset markets adjusted sharply after the Federal Reserve confirmed that it would begin reducing the pace of stimulus this year as the economic outlook improves.
Against the buoyant dollar, the euro struggled after Purchasing Managers’ Index (PMI) data showed the euro zone’s private sector has yet to begin making a steady recovery.
But the main focus for markets was Fed Chairman Ben Bernanke’s comments that tapering of its bond buying depends on economic data and that the jobless rate should have fallen to near 7 percent from its current 7.6 percent by the time bond purchases are halted.
The prospects of fading stimulus helped the dollar rise against the yen, breaking away from the pattern in the past few weeks in which the U.S. currency often fell in tandem with share prices.
The dollar index, which tracks its performance against a basket of other major currencies, rose 0.6 percent to 81.890 , its highest since June 10.
Bernanke’s comments drove U.S. stock and bond prices sharply lower, pushing benchmark Treasury yields to a 15-month high.
Japan’s Nikkei stock index fell 1.7 percent, tracking losses in U.S. stocks, while European shares also opened lower.
“The reaction of the markets, the fact that it sold off so heavily, really is a testament that the markets have become so addicted to the very cheap levels of liquidity that have been prevalent over the last six to seven, maybe more months,” said Jane Foley, senior currency strategist at Rabobank.
Against the yen, the dollar gained around 1.8 percent to 98.18 yen, close to its highest in a week, with resistance cited at 99.50 yen.
The euro was down 0.5 percent at $1.3223, swiftly retreating from a four-month high around $1.3418 touched on Wednesday. A reported option expiry at $1.3200 could keep it close to that level.
Analysts expect global markets, which have been buoyed by the Fed’s easy money policy for the last few years, to continue adjusting to the prospect of the U.S. economy regaining strength.
“Some people had hoped that Bernanke might strike a dovish tone given nervous market sentiment of late, so it was a bit of a surprise,” said Koichi Takamatsu, executive director of FX trading at Nomura Securities.
The Fed has also now gone out ahead of the world’s other big central banks in signalling a reduction in its stimulus.
The Bank of Japan is just two months into a huge two-year stimulus drive, while a sluggish euro zone economy is seen as keeping the European Central Bank’s easy policy bias intact.
High-yielding currencies like the Australian dollar were among the hardest hit on Thursday. The Aussie hit a fresh 33-month trough of $0.9169, extending losses after data showed China’s vast manufacturing sector weakened in June to a 9-month low.
The Swiss franc edged up after the Swiss National Bank kept its cap of 1.20 per euro on the franc. The euro was last down 0.3 percent at 1.2304 francs, down from around 1.2330 just before the SNB decision.