TOKYO, JAPAN, May 21, 2009 (AFP) - The dollar slid to a two-month low against the yen in Asian trade on Thursday after the Federal Reserve downgraded its outlook for the US economy, dealers said.

The dollar fell to as low as 94.28 yen, the weakest since March 20. In late Tokyo trade it was at 94.67, down from 94.87 yen in New York late Wednesday.

Traders sold the greenback after the Fed revised its forecasts to show a drop in US economic output of between 1.3 and 2.0 percent in 2009.

Fed policymakers saw 'tentative evidence' the US economy is emerging from recession and think it could show modest growth in the second half of 2009, according to minutes from their April 28-29 meeting.

But they also said the Fed would buy more securities to ease a credit squeeze, sending long-term interest rates and stock prices lower.

'The dollar was pressured by these factors,' said Yuji Saito, head of forex at Societe Generale in Tokyo.

The euro was steady at 1.3786 dollars against 1.3781 in New York while falling to 130.55 from 130.75.

The European currency had hit a four-month high of 1.3830 dollars in New York as rising economic confidence on financial markets encouraged investors to switch away from the safe-haven US currency.

US Treasury Secretary Timothy Geithner said that a new plan to buy up 'toxic assets' from banks will be in place shortly.