* Minutes from FOMC meeting suggest Fed tapering on track
* BOJ governor Kuroda's comments drive yen to highs; dollar recovers
* Euro pegged back ahead of European election
* Sterling index at 5-1/2-yr high after BoE minutes, UK data (Recasts, adds quote, Fed minutes, updates prices)
By Gertrude Chavez-Dreyfuss
NEW YORK, May 21 (Reuters) - The dollar rose against the euro and yen on Wednesday as the latest Federal Reserve meeting minutes suggested the U.S. central bank will keep reducing its stimulus plan, while markets expected the European Central Bank to further ease monetary policy in the euro zone.
The greenback's advance versus the yen was the first in six sessions, while it gained against the euro for a second straight day.
The Fed minutes suggested that the U.S. central bank's reduction of its stimulus program remained intact, despite comments from some Fed participants that it's too early to confirm whether or not the U.S. economy is moving to sustained above-trend growth.
"The baseline scenario is still for slow, but steady improvement in the economy, there is no inflation risk, and the Fed will keep tapering," said Richard Franulovich, senior currency strategist at Westpac Securities in New York.
He cited the rise in the dollar against the yen following the minutes, despite what Franulovich perceived to be dovish remarks from the Fed minutes. He said the run-up in dollar/yen may have something to do with the gain in U.S. 10-year yields, which has a strong positive correlation with this particular currency pair, following the release of the Fed comments.
"Regardless of what caused the rise in dollar/yen, there's not enough information in the minutes to sustain it at 101.60 yen."
In late trading, the dollar rose 0.1 percent against the yen to 101.45. It earlier tumbled to its lowest in more than three months at 100.80 yen, hurt by optimistic comments about the economy from Bank of Japan Governor Haruhiko Kuroda who gave no hint of further monetary easing in the near term.
Kuroda said the massive asset purchase program launched last year was still working and having its desired effect.
In the options market, one-month dollar/yen implied volatility - or the expected price swing - rose to its highest in three weeks, highlighting expectations that the pair is likely to see a new trading range in coming weeks.
The euro, meanwhile, fell to a 3-1/2-month low against the dollar at $1.3636 and was last $1.3676, down 0.2 percent.
"Expectations about additional easing measures in June have increased since the ECB's last meeting," said John Doyle, director of markets at Tempus Consulting in Washington. "And the European elections are also a factor in the euro's weakness."
Votes for anti-austerity, euro-sceptic parties look set to increase at the European Parliamentary elections later this week.
The biggest volumes in the FX market were seen in the pound, which rose to a 5-1/2 year high against a basket of currencies , after a surge in retail sales last month and signs some Bank of England policymakers were leaning towards a rate hike.