* Dollar falls to new 1-year low vs euro after Fed
* Fed says U.S. recovery is underway
* Fed to slow purchases of mortgage debt (Updates after Fed meeting, adds comment, updates prices)
By Wanfeng Zhou
NEW YORK, Sept 23 (Reuters) - The dollar fell to a fresh one-year low against the euro and dropped against the yen on Wednesday after the Federal Reserve said the U.S. economy was recovering and that it would extend but slow its purchases of mortgage-backed securities.
The Fed, as widely expected, held overnight lending rates at close to zero percent and repeated its intention to keep rates exceptionally low for an extended period.
In a statement following its two-day meeting, the U.S. central bank said the economy was in recovery after a severe downturn and therefore would gradually slow the pace of its purchases of mortgage-related debt in order to promote a smooth transition.
"This continues the theory of 'green shoots,' which should still lead to risk taking and that should definitely benefit the euro," said Dan Cook, senior market analyst at IG Markets in Chicago. "We didn't get anything from them today that will change direction."
Cook also said that the Fed's decision to extend the life of the MBS program was widely expected.
"They don't want to shock the market just by stopping them," he added.
The euro rose as high as $1.4842, according to Reuters data, its highest level since September 2008. It last traded up 0.2 percent at at $1.4810.
Against the yen, the dollar reversed earlier gains to trade 0.1 percent lower at 91.04 yen.
The dollar index, which measures the dollar's value against a basket of six other major currencies, was 0.2 percent lower at 75.981, after falling to its lowest since Aug. 11,2008.
"We see just some fine-tuning of the economic outlook," said Michael Woolfolk, senior currency strategist at BNY Mellon in New York.
"And now that the risk of the Fed meeting has passed, people are comfortable returning to the trend of selling the dollar. That's the bottom line."