SYDNEY (Mar 19): The dollar nursed punishing losses in Asia on Thursday after investors priced in a later start and a slower pace for future U.S rate rises, slashing Treasury yields and firing up Wall Street stocks.

The formerly friendless euro found itself up at $1.0835 , having jumped 2.8 percent on Wednesday, while oil held gains of 5 percent as the dollar retreat lifted commodities.

Early signs were also promising for regional stocks with MSCI's broadest index of Asia-Pacific shares outside Japan up 0.9 percent.

Short-term U.S. yields boasted their biggest drop in six years after the Federal Reserve trimmed forecasts for inflation and growth, and said unemployment could fall further than first thought without risking a spike in inflation.

The median projection for the Fed funds rate at the end of 2015 was cut to 0.625 percent, down half a point from December.

Fed Chair Janet Yellen also sounded uncomfortable with the strength of the dollar, saying it would be a "notable drag" on exports and a downward force on inflation.

"There was nothing in the statement to suggest that the Fed is leaning toward a June hike," said Michelle Girard, chief U.S. economist at RBS.

"Developments leave us feeling more comfortable with our official call for the first rate hike being in September."

The market reaction was immediate and violent. Fed fund futures <0#FF:> surged as investors sharply scaled back expectations for how fast and far rates might rise.

Yields on two-year notes nosedived 11 basis points to 0.56 percent as prices rose, the biggest daily rally since 2009.

The drop in yields pulled the rug out from under the dollar, as investors have been massively long of the currency in the expectation its interest rate advantage could only get wider.

It crashed 1.8 percent against a basket of currencies for the largest daily loss in six years. The Swiss franc, sterling and the Australian dollar all enjoyed similar gains, while the New Zealand dollar got an extra boost from upbeat growth data.

The dollar suffered a little less against the yen to stand at 120.24 on Thursday, after a fall of 1.2 percent.

Wall Street was encouraged by the prospect that policy would stay super-loose for longer and the Dow ended Wednesday up 1.27 percent. The S&P 500 rose 1.21 percent and the Nasdaq 0.92 percent.

Among commodities, gold rallied to $1,168.35 an ounce , having climbed from $1.145.00 on Wednesday.

U.S. crude was quoted at $44.62 after gaining 3 percent on Wednesday. Brent had settled $2.40 higher at $55.91 a barrel.