FOREX-Dollar rises for third day, boosted by Fed policy minutes

* Dollar reverses early losses

* Fed minutes hint at earlier rate hike

* Dollar extends gains to three days (Recasts; adds Fed minutes, late prices)

By Michael Connor

NEW YORK, April 8 (Reuters) – The dollar rose on Wednesday, gaining against other leading currencies for a third day, as Federal Reserve minutes showed that U.S. policymakers were readying for a possible interest rate hike during 2015.

The dollar index, which measures the greenback against the yen and five other major currencies, was down for most of the session, then pivoted to gains after release of minutes from a March 17-18 policymakers’ meeting. The index was up 0.21 percent in late trading.

The euro sank below $ 1.08 and was last off 0.25 percent at $ 1.0787, while the dollar was last at 120.10 yen , off 0.14 percent for the day but above the day’s low below 120 yen.

“The overall tone of the minutes suggest the Fed could boost U.S. interest rates sooner rather than later, a dollar positive scenario,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

Yields on U.S. short-term Treasury debt, which are especially sensitive to shifts in Fed rates policy, climbed to one-week peaks.

The minutes depicted officials acknowledging a weak start to the year but remaining confident enough in the strength of the U.S. economic recovery to continue laying groundwork for an interest rate hike later this year.

The meeting ended with the Fed opening the door to a June rate hike, and the minutes said some participants went on record saying they expected upcoming economic data would warrant an initial rate increase that month.

“The market took it as relatively hawkish,” said Shaun Osborne, chief currency strategist at TD Securities in Toronto. “Investors were likely expecting something more dovish on the grounds of the data that we have seen recently.”

Earlier, the greenback was as low as 119.65 yen after the Bank of Japan kept monetary policy unchanged despite slowing inflation.

Governor Haruhiko Kuroda said that because of easing steps taken last October, a slowdown in inflation had not hurt forward inflation expectations, reducing the chances of a further expansion in Japan’s asset-buying program in coming months.

As a result, the yen climbed and knocked the dollar from a nearly three-week high of 120.45 yen hit on Tuesday.

(Reporting by Michael Connor in New York; Editing by Lisa Von Ahn and David Gregorio)