* Dollar index hits 3-yr low, euro hits 17-mth high
* Model funds latching on to weak dollar trend
* Euro may head toward $1.50, Aussie $1.10-analyst
* BOJ keeps monetary policy unchanged as expected
By Masayuki Kitano
SINGAPORE, April 28 (Reuters) - The dollar sank to a three-year low against a basket of currencies on Thursday and was at risk of a drop to $1.50 versus the euro, with momentum-driven investors piling on in anticipation U.S. interest rates will be low for a long time.
The dollar slid across the board, with the Australian dollar bulldozing previous highs to a 29-year peak above $1.0900. Both the euro and sterling scaled 17-month highs and the Singapore dollar hit yet another record high.
Various market players including Asian investors and model funds, sold the dollar anew, said a Tokyo-based trader.
Analysts said more dollar weakness was likely after the Federal Reserve said overnight that it would end its bond-buying programme in June as planned and appeared in no rush to tighten monetary policy further.
"We're looking for reasons why it shouldn't continue but the over-riding big picture is that it should continue," said Rob Ryan, FX strategist at BNP Paribas in Singapore.
"It's clear that the dollar selling has been given a green light and we have the Asian central banks intervening... So that suggests further upside for the euro and Aussie," Ryan said.
Traders cited talk of dollar-buying intervention by a few Asian central banks on Thursday. Traders and analysts say such central banks often later sell some of the dollars purchased through intervention to buy other major currencies, to help keep their currency holdings diversified. [ID:nL3E7FS09Z]
The dollar index, which measures the dollar's value against a basket of currencies, slid to a three-year low of 72.871, and last stood at 72.972 , down 0.7 percent on the day.
The dollar index has slid nearly 4 percent this month, on track for the biggest monthly decline since Sept. 2010 and bringing it closer to a record low of 70.698 hit in March 2008.
The euro hit a 17-month high of $1.4882 on trading platform EBS, its rise having gained steam after triggering stop-loss bids around that level and after breaching resistance around $1.4850, the upper part of a uptrend channel that had been in place since mid-February.
"It's obviously pretty much open water here until $1.50," said Ryan at BNP Paribas. Ryan added that the Australian dollar could try for $1.10.
The euro last stood at $1.4858 , up 0.5 percent from late U.S. trading on Wednesday.
Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corp in Tokyo, said the euro could soon rise above its November 2009 high of $1.5145.
"The euro will probably rise to around $1.52 next week," Uno said, adding that U.S. may be slipping into stagflation, which makes U.S. policy manoeuvres more difficult.
NO TRACTION FROM BERNANKE
The dollar gained no traction from a news conference by Federal Reserve Chairman Ben Bernanke on Wednesday where he forecast weaker U.S. growth in the first three months of 2011, though he attributed it to transitory factors. It was the first regularly scheduled briefing by a Fed chief in the central bank's 97-year history. [ID:nN26291565]
"The reason for the dollar's broad weakness is that market players think it makes sense to use the dollar to fund investment in various assets, since U.S. interest rates are likely to stay low for a while," said Daisuke Karakama, market economist at Mizuho Corporate Bank in Tokyo.
A Reuters poll on Wednesday showed that most U.S. primary dealers expect the Fed to keep interest rates near zero through the end of 2011. By contrast both the European Central Bank and the Bank of England are seen likely to raise interest rates later this year.
Sterling was also on a tear, hitting a 17-month peak of $1.6747 , and last up 0.5 percent at $1.6714. Possible upside targets include the November 2009 high at $1.6879 and then the August 2009 peak of $1.7044.
The Australian dollar scaled a fresh 29-year high near $1.0948 and was last up 0.6 percent at $1.0927.
The yen showed muted reaction after the Bank of Japan kept monetary policy steady on Thursday, as widely expected.
In a surprise move, Deputy Governor Kiyohiko Nishimura proposed expanding the BOJ's pool of funds for asset buying and market operations by 5 trillion yen ($61 billion), to 45 trillion yen, but the proposal was rejected by a vote of one to eight. [ID:nL3E7FR5BU]
The yen took the news in stride, however. The dollar was last down 0.5 percent at 81.75 yen , little changed compared to just before the BOJ's announcement, and not far from a one-month low of 81.27 yen hit on Wednesday.
The yen had been sold earlier this month as traders think quake-stricken Japan is even less likely than the United States to tighten its monetary policy for the foreseeable future. (Additional reporting by Reuters FX Analyst Rick Lloyd and Jongwoo Cheon in Singapore, Hideyuki Sano in Tokyo)