* FOMC says recovery too slow to drop 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 (Recasts; adds details of Fed announcement, updates prices)
NEW YORK, Dec 14 (Reuters) - The U.S. dollar rose slightly 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 purchase $600 billion in bonds to stimulate growth and create jobs. [ID:nTLAENE627] [ID:nTLAENE627]
Trading was choppy 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 Federal Reserve gives any hint at its Tuesday meeting of altering a $600 billion bond-buying program designed to push long-term interest rates lower.
But the Fed statement ultimately did nothing to change investor expectations.
"I think ultimately it's dollar positive given that there were some fears they could announced further expansion of quantitative easing," said Greg Salvaggio, vice president of trading at Tempus Consulting in Washington. "The good thing is they are keeping it as is, and I take that to be moderately dollar positive."
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 $1.3375
"I don't like their comments about the pace of growth not being substantial enough to bring down unemployment," said Salvaggio. "But the Fed not expanding the program gives them wiggle room to get out of it next year if they see the situation improving."
Salvaggio expects the euro to begin a decline toward $1.30 by year end.
The dollar rose 0.3 percent against the yen to 83.68 yen
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 their 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. [ID:nN13105751]
Bond yields extended their rise after the Fed statement.
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. "Also euro zone bond spreads seem to have stabilized on the back of the recent ECB buying, which has helped the euro."
The European Central Bank stepped up its purchases of government bonds last week, although the amount bought was still well below levels reached last spring.
The euro also hit a three-week high against the yen
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. [ID:nLDE6BD17S]
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. [ID:nZCHDNE64B] (Additional reporting by Neal Armstrong in London) (Reporting by Nick Olivari and Steven C Johnson)