FOREX-Dollar down vs euro, yen as Fed vows to keep rates low

                                
  
                                
 * Fed says will keep rates "exceptionally low"
                                
 * Fed's bearish comments on jobs, housing weigh on dollar
                                
 * S&P affirms Greece ratings, ends downgrade review
                                
 * U.S. Senate bill would penalize China over yuan
  (Adds comment, updates prices)
                                
 By Gertrude Chavez-Dreyfuss
                                
 NEW YORK, March 16 (Reuters) - The dollar weakened against
the euro and yen on Tuesday after the Federal Reserve held U.S.
interest rates unchanged and reiterated a pledge to keep rates
"exceptionally low" for an "extended period."
                                
 A dissenting vote by the president of the Kansas City Fed,
Thomas Hoenig added to the bearish sentiment on the dollar
because no other policy makers joined him in objecting to a
continued expression of the need for ultra-low rates for an
extended period.
                                
 The Fed has targeted an overnight bank-to-bank lending rate
of between zero and 0.25 percent since December 2008. Interest
rates near zero diminish the appeal of the U.S. dollar against
higher-yielding currencies. For the Fed statement, click on
[ID:nN16251615].
                                
 "Going into the Fed meeting, traders were looking for two
things: the inclusion of 'extended period' and the number of
dissenters. Once forex traders saw the words reappear in the
statement and saw that Hoenig was the only dissenter, they
bailed out of dollars," said Kathy Lien, director of FX
strategy, at GFT in New York.
                                
 Hoenig, who cast a lone dissenting vote for a second
consecutive meeting, said the commitment to keep rates low was
no longer warranted.
                                
 The euro rose against the dollar to intraday peaks at
$1.3783 <EUR=>, according to Reuters data. It last traded at
$1.3777, up 0.7 percent on the day.
                                
 The euro had started gaining earlier in the global session
after European Union finance ministers backed plans to help
Greece if needed and Standard & Poor's affirmed its ratings on
the debt-stricken country and ended its review for a downgrade.
For the S&P story, click on [ID:nN16231275].
                                
 The Fed's statement added to the market's bearish stance on
the dollar, though the greenback is still up nearly 1 percent
versus the euro so far this month and roughly 4 percent higher
this year.
                                
 Following the release of the Fed's policy statement,
implied prospects that the U.S. central bank will boost the
federal funds rate by its November meeting slid to 76 percent,
based on trading in the November futures contract at the
Chicago Board of Trade.
                                
 Prospects for a rate hike by the November meeting had been
roughly 87 percent before end of the meeting of the
policy-setting Federal Open Market Committee.
                                
 U.S. HOUSING, EMPLOYMENT PROSPECTS
                                
 Downbeat comments in the Fed's policy statement on the U.S.
housing and employment sectors also weighed on the dollar, said
Greg Salvaggio, senior vice president for capital markets, at
Tempus Consulting in Washington.
                                
 "I don't think the market expected them to say housing is
still at depressed levels and employers are still reluctant to
add to payrolls," Salvaggio said. Still, he added, "We're not
expecting the euro to break out of its $1.35-$1.38 range on the
back of this."
                                
 Against the yen, the dollar slipped to 90.24 yen <JPY=>,
down 0.3 percent. Repatriation flows by Japanese firms ahead of
the financial year-end on March 31 also benefited the Japanese
currency, traders said.
                                
 The Bank of Japan ends its two-day meeting on Wednesday and
is likely to announce more monetary easing measures, like
boosting the size or duration of special fund-pumping
operations. [ID:nTOE62B065]
                                
 Members of the U.S. Congress on Tuesday, meanwhile,
threatened Beijing with duties on some of its exports if it
fails to revalue its currency, pressuring the Obama
administration to label China a currency manipulator.
[ID:nN16248922].
                                
 Nick Bennenbroek, head of FX strategy at Wells Fargo in New
York, said the congressional measure is counterproductive.
"When China gets international pressure to adjust its currency
policy, it seems to resist that pressure. It doesn't like to be
pushed around."
                                
  Overall, Bennenbroek said, increased tensions between the
United States and China should scale back expectations for an
appreciation in the yuan in the non-deliverable forwards market
and also restrain gains in  Asian currencies.
 (Additional reporting by Steven C. Johnson and Wanfeng Zhou;
Editing by Leslie Adler)