* U.S. Treasury yields rise on Fed's upbeat statement
* Dollar index at 3-1/2 week highs
* Kiwi wilts on dovish RBNZ statement
* Brazil shocks with interest-rate hike (Updates prices)
By Lisa Twaronite and Tomo Uetake
TOKYO, Oct 30 (Reuters) - The dollar stayed on the front foot on Thursday, setting a 3-1/2 week high against a basket of currencies after the Federal Reserve surprised markets with a more hawkish policy tone and signalled its confidence in the U.S. economic recovery.
The Fed released a statement that underscored the improving U.S. labour market, dismissing recent financial market volatility, European growth challenges and largely weak inflation outlook.
While the central bank said interest rates would remain low for a "considerable time," the Fed's statement helped to push up U.S. yields and increased the greenback's appeal.
"Although the Fed's statement was hawkish than markets had expected, Wall Street shares didn't fall much. It means that the market took the hawkish tone as the Fed's confidence in the U.S. economy." said Kengo Suzuki, chief forex strategist at Mizuho Securities.
The yield on benchmark 10-year Treasury notes stood at 2.310 percent in Asian trade, after spiking to a three-week high of 2.362 percent on Wednesday.
The dollar index, which measures the U.S. currency against a basket of six major rivals, rose to 86.293 on Thursday, its highest level since October 6, in the wake of the Fed's announcement.
The euro touched a 3-1/2 week low of $1.2586 and last traded at $1.2605, down 0.2 percent on the day.
Against the yen, the greenback rose above 109 yen for the first time in 3-1/2 weeks. The dollar last traded at 109.10 yen , up 0.2 percent on the day.
Muzuho's Suzuki said the dollar may head toward the six-year high of 110.09 marked at the start of this month as soon as next week.
The yen showed limited reaction to comments by Japanese Prime Minister Shinzo Abe, who said on Thursday that a weak yen was positive for exporters, but also added that he will closely watch the negative impact from a weak currency on small firms and local areas.
Abe had made broadly similar remarks in early October, in the wake of the yen's drop to a six-year low against the dollar.
The New Zealand dollar, meanwhile, fell sharply after that country's central bank sounded a bit more dovish following a widely expected decision to leave interest rates unchanged.
The kiwi, already under pressure against a firmer U.S. dollar, fell to around $0.7770 from around $0.7820 before the announcement. It last traded at $0.7794.
Elsewhere, Brazil's central bank raised interest rates on Wednesday, surprising investors with a bold move that signals President Dilma Rousseff could make more market-friendly policy changes after her narrow re-election victory on Sunday. (Additional reporting by Masayuki Kitano; Editing by Shri Navaratnam)
TAKEN FROM REUTERS
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