* Fed may need to taper, halt QE3 - minutes * Japan PM Abe backtracks on foreign bond buying * Sterling drops sharply after dovish BoE minutes By Wanfeng Zhou NEW YORK, Feb 20 (Reuters) - The dollar jumped to a four-week high against the euro and rose versus the yen on Wednesday after minutes from the Federal Reserve's last meeting suggested policymakers may have to slow or stop buying assets before seeing the pick-up in hiring. The Australian, Canadian and New Zealand dollars fell as weakness in stocks and commodities prompted investors to dump riskier assets. Sterling tumbled on speculation of further monetary easing by the Bank of England. Policymakers are increasingly worried about the costs and risks of their quantitative-easing program, the Fed minutes showed, fueling expectations the central bank may scale back its stimulus program sooner rather than later. "The dollar has been generally firm all day and the (Fed) minutes have been seized as a handy reason to extend those gains," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman. The U.S. currency had been rising even before the Fed minutes as weakness in equities and commodities and speculation of a hedge fund selling assets spurred investors to seek safe havens. "We are seeing generally a risk-off sentiment," said Ravi Bharadwaj, market analyst at Western Union Business Solutions in Washington. The dollar index, which tracks the greenback versus a basket of six currencies, rose 0.8 percent to 81.078. It had hit as high as 81.116, the strongest since late November. Although the minutes said that many officials voiced concern last month over potential costs of further asset purchases, that hawkish tone was balanced somewhat by a warning about the dangers of ending the bond-buying program prematurely. The Fed voted last month to maintain its third round of so-called quantitative easing, or QE3, at an $85 billion monthly pace, and said it would buy bonds until it saw a substantial improvement in the outlook for the labor market, which remains under pressure with the jobless rate at 7.9 percent. Alan Ruskin, head of G10 FX strategy at Deutsche Bank in New York, said the minutes will do nothing to detract from expectations of a tapering off of quantitative easing in the second half of the year. "That will be treated like the beginning of the end of highly accommodative policy, and therefore akin to a tightening, even if the Fed's balance sheet is still expanding," he wrote to clients. That should result in a stronger dollar in the second half of the year, he said. The euro fell 0.8 percent to $1.3278, having dropped as low as $1.3273 on Reuters data, the lowest since Jan. 23. It slipped 0.7 percent to 124.41 yen. Against the yen, the dollar rose 0.2 percent to 93.69 yen as U.S. bond yields rose. The yen had gained the previous day after disagreements between Japanese officials on foreign bond purchases raised doubts over how aggressively Japan will ease its monetary policy. Japanese Finance Minister Taro Aso said on Tuesday he was not considering buying foreign bonds as part of efforts to ease monetary policy, even though Prime Minister Shinzo Abe said this was an option. But Abe mirrored Aso's stance on Wednesday, saying the need to establish a public-private sector fund to buy foreign bonds has diminished. Sterling fell to its lowest since July, 2010 versus the dollar and was last down 1.2 percent at $1.5238 after minutes from the Bank of England's latest meeting showed the central bank appeared closer than expected to loosening monetary policy. "The BoE have moved the goal posts. They are now saying that despite higher inflation they are thinking of doing more QE, so it is clear sterling has to weaken," said Hans Redeker, head of Global FX strategy at Morgan Stanley. The Australian dollar lost 1 percent to $1.0246, while the New Zealand dollar lost 1.5 percent to $0.8339. Reserve Bank of New Zealand Governor Graeme Wheeler said global imbalances and a weak U.S. dollar were driving up the New Zealand dollar and left the currency overvalued compared with economic fundamentals.