* Fed's FOMC says recovery too slow to cut unemployment
* Fed reaffirms QE commitment, no expansion hints
* Euro hits three-week high but gives up gains
* Investors see rise in U.S. yields as overdone
* Australian dollar breaks parity with greenback (Adds comment, updates prices)
NEW YORK, Dec 14 (Reuters) - The U.S. dollar rose against the euro and yen on Tuesday after the U.S. Federal Reserve said the economic recovery was still too slow to bring down unemployment and reaffirmed its commitment to buy $600 billion in bonds to stimulate growth and create jobs.
U.S. Treasuries extended losses after the Fed statement showed no signs of curtailing its economic stimulus measures, raising the prospect of accelerating growth and inflation.
Trading was volatile after the announcement but the euro had already pared gains and retreated from a three-week high against the dollar after stronger-than-expected U.S. retail sales data lifted bond yields and optimism about the economy.
The data, coupled with U.S. President Barack Obama's deal last week to extend tax cuts for all earners, had left traders on alert to see if the Fed would give any hint at its Tuesday meeting of altering a $600 billion bond-buying program designed to push long-term interest rates lower.
But the statement by the Fed's Open Market Committee ultimately did nothing to change investor expectations.
"The good thing is they are keeping it as is, and I take that to be moderately dollar positive," said Greg Salvaggio, vice president of trading at Tempus Consulting in Washington.
The euro, which began the week at $1.32, hit a three-week high near $1.35 overnight after rising above the 38.2 percent retracement of its November decline. It was last at $1.3379, down 0.1 percent on the day.
"The Fed not expanding the program gives them wiggle room to get out of it next year if they see the situation improving," said Salvaggio, who expects the euro to begin a decline toward $1.30 by year end.
The dollar rose 0.3 percent against the yen to 83.63 yen while the Australian dollar hit a one-month high above parity with the greenback as oil prices rose but then eased.
Traders also said year-end positioning and low trading volume was exaggerating some price swings.
U.S. YIELDS STILL IN FOCUS
The tax cut deal has prompted economists to upgrade U.S. growth forecasts but it also pushed up bond yields for fear it will swell the deficit.
The dollar rose with yields last week but fell on Monday when Moody's warned the tax cuts could move it a step closer to cutting the United States' triple-A credit rating.
Bond yields extended their rise after the Fed statement.
"The Fed is not offering anything new with the statement, but the reaffirmation of the second round of QE has probably carried some importance in itself," said Vassili Serebriakov, currency strategist at Wells Fargo in New York, referring to the Fed's bond-buying program, known as quantitative easing.
Some strategists said fear of imminent U.S. inflation and higher long-term rates was premature.
"The recent rise in front-end U.S. yields looks overdone as core inflation isn't going to pick up quickly," said Gavin Friend, currency strategist at nabCapital in London.
The euro also hit a three-week high against the yen, shrugging off the weaker-than-forecast current conditions element of the German ZEW survey.
But it pared gains after the S&P rating agency said Belgian sovereign debt could be downgraded within six months, sparking fear of contagion from the euro zone crisis.
The U.S. dollar and euro both fell to session lows against the Swiss franc ahead of the Federal Reserve announcement.
Earlier in the global trading day, the Swiss government raised its 2011 economic growth forecast, saying solid consumption growth and robust construction spending would help soften a slowdown in exports. (Reporting by Nick Olivari and Steven C Johnson; Additional reporting by Wanfeng Zhou in New York and Neal Armstrong in London; Editing by James Dalgleish)