* Euro highest since late 2014
* Dollar index hits four-month low
* Sterling soars to highest level since Brexit vote
* Bitcoin bounces after 11 percent drop (Updates prices, market activity, comment)
By Saqib Iqbal Ahmed
NEW YORK, Jan 12 (Reuters) - The dollar slipped to a more than three-year low against the euro on Friday, as the common currency extended its gains on hopes that European Central Bank policymakers are preparing to reduce their vast monetary stimulus programme.
The euro was up 1.21 percent to $1.2177, on pace for its biggest single-day percentage gain against the greenback in more than six months.
On Thursday, the euro rose 0.72 percent against the dollar after minutes of the ECB's December meeting showed that bank policymakers could revisit their communication stance in early 2018.
Investors took that as a signal that the ECB will wind down its 2.55 trillion euro ($3.10 trillion) bond purchase scheme this year if Europe's economy continues to hum along.
"The latest ECB comments were a bit on the hawkish side, so that's giving more life to the euro," Minh Trang, senior currency trader at Silicon Valley Bank in Santa Clara, California.
The euro's rise weighed on the dollar index, which measures the greenback against six rival currencies. The index was down 0.92 percent at 91.008, after slipping to a four-month low of 90.954.
A sharp rise in the British pound also dragged the index lower. Sterling rocketed to its highest level against the dollar since the vote to leave the European Union, after a report that the Netherlands and Spain were open to a deal for Britain to remain as close as possible to the trading bloc.
"Anytime you hear Brexit going well it is going to give the pound a little bit of a boost," said Trang.
Sterling was up 1.43 percent to $1.3729.
Given the strong momentum in the euro and sterling, the dollar failed to capitalise on data which showed underlying U.S. consumer prices recorded their largest increase in 11 months in December, which bolstered expectations that inflation will accelerate this year.
"It may be a bit premature to jump on the inflation bandwagon. I would want to see at least a quarter or two of some solid numbers," Trang said.
Bitcoin was 3.8 percent higher at $13,749.05 on the Luxembourg-based Bitstamp exchange a day after it skidded over 11 percent after the government of South Korea said it was considering a plan to ban cryptocurrency trading.
Reporting by Saqib Iqbal Ahmed, Editing by Rosalba O'Brien