* Dollar extends overnight gains versus yen, euro

* BOJ stands pat on policy as expected, little market reaction

* Prospects of Dec US rate hike fully back in play after Fed

* Kiwi pulls back from 1-1/2-mth high (Adds details and quotes, updates prices)

By Shinichi Saoshiro

TOKYO, Sept 21 (Reuters) - The dollar rose to a two-month high against the yen and extended its gains against the euro on Thursday after a hawkish-sounding Federal Reserve heightened expectations for an interest rate hike in December.

After concluding a closely watched two-day policy meeting on Wednesday, the Fed left interest rates unchanged as expected but signalled it still expects one more increase by the end of the year, despite a recent bout of low inflation.

The U.S. central bank, as anticipated, also said it would begin in October to reduce its holdings of around $4.2 trillion in U.S. Treasury bonds and mortgage-backed securities it acquired after the 2008 financial crisis.

Interest rate futures traders are now pricing in about a 70 percent chance of a December Fed rate hike, up from above 50 percent prior to the Fed meeting, according to CME's FedWatch tool.

The euro shed 0.1 percent to $1.1886 after dropping 0.8 percent the previous day, when it reversed a four-session winning run.

The dollar was 0.2 percent higher at 112.430 yen after brushing 112.645, its highest since July 18. Still, the greenback's gains against the yen were assessed as relatively limited.

"The Fed will likely stick to its intent of hiking rates one more time in 2017 and three more times in 2018. But it also cut its long-term interest rate projection and this has somewhat slowed the dollar's gains versus the yen by causing the U.S. yield curve to flatten," said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

While the Fed's latest policy stance was viewed as hawkish for the most part, the central bank did lower again its estimated long-term "neutral" interest rate from 3.0 percent to 2.75 percent, reflecting concerns about overall economic vitality.

Against this backdrop, the 30-year Treasury bond yield climbed 2 basis points overnight to a one-month high of 2.836 percent before dipping back to 2.814 percent on Thursday.

The two-year Treasury yield rose more assertively, climbing roughly 5 basis points to touch a nine-year high of 1.451 percent and last stood firm at 1.446 percent.

The Treasury yield curve flattened as a result with the 30-year/2-year yield spread at its tightest in almost two months and nearing its narrowest level in nearly a decade.

"The Fed revising down its long-term interest rate forecast is positive for longer-dated Treasuries," said Noji Makoto, senior strategist at SMBC Nikko Securities, implying that yields on these debt maturities stood to decline eventually.