* Ireland downgrade pushes euro down toward $1.38
* Dollar index hits highest since May 20
* 2-year U.S. note yields jump to highest in 7 months
* Focus on U.S. Treasury auctions this week
(Adds comments, details. Changes byline)
By Vivianne Rodrigues
NEW YORK, June 8 (Reuters) - The euro fell broadly on
Monday, hurt by a rating agency's second downgrade on Ireland's
sovereign debt, while the dollar extended gains as Treasury
yields continued to rise following last week's
stronger-than-expected U.S. jobs data.
Ratings agency Standard & Poor's cut Ireland's sovereign
credit rating on Monday to AA, its second downgrade in three
months. That provided a fresh catalyst to sell the euro, which
earlier fell to $1.3806, almost a two-week low.
It also helped the dollar, which rallied since Friday after
data showed the United States lost fewer jobs than expected in
May. That triggered speculation the Federal Reserve may raise
interest rates next year, pushing two-year government note
yields to a seven-month high.
"The immediate reaction (to the downgrade) was to take the
euro lower, which in any event was trading heavily," said Marc
Chandler, senior currency strategist at Brown Brothers Harriman
in New York.
The euro fell as low as $1.3806, according to Reuters data,
and in afternoon trading was last down 0.4 percent for the day
at $1.3910 <EUR=>. Against the yen, the euro was down 0.8
percent at 136.79 yen.
"The euro was under pressure after last week's dollar
bounce and the downgrade puts further pressure on it now," said
Geraldine Concagh, economist at AIB Group Treasury in Dublin.
Technical strategists at Citigroup said fairly strong euro
support lies in the $1.3722-$1.3793 area, "which should hold at
least on the first attempt."
An index that gauges the dollar's value against six major
currencies hit its highest level since May 20. It was last up
0.2 percent at 80.817 <.DXY> after having its best performance
since December on Friday.
The dollar slipped 0.3 percent against the yen to 98.33 yen
<JPY=>, still close to Friday's one-month high of 98.90 yen on
trading platform EBS.
Sterling was last up 0.5 percent at $1.6068 <GBP=> in
volatile trading. Earlier, it fell as low as $1.5803 after
support for Prime Minister Gordon Brown's ruling Labour Party
in European elections plunged to its lowest level in a century,
adding to uncertainty about his political future.
HIGHER US YIELDS
Even before Ireland's downgrade, the dollar was buoyed by
investors' focus on improving prospects for the U.S. economy,
reversing a trend in which the dollar had been sold for higher-
risk currencies.
The pace of U.S. job losses slowed sharply last month, the
strongest sign to date that the recession is diminishing, even
as the unemployment rate hit its highest in nearly 26 years.
The spike in two-year note yields forced more investors to
unwind bets against the U.S. currency as some analysts said the
dollar's earlier slide had been excessive. Two- and 10-year
U.S. Treasury yields hit their highest levels since November in
Asia on Monday as Treasuries extended losses.
"Another reason that has intensified the rally in the
dollar has been the upward explosion of 10-year yields," said
Jessica Hoversen, a fixed income and foreign exchange
strategist at MF Global Research, in Chicago. "The spike in
Treasury yields improved the dollar's interest rate
differential and thus intensified the dollar's gains."
Chuck Butler, president of Everbank World Markets in St.
Louis, added that the rise in bond yields has some investors
looking ahead, "thinking the Fed is probably going to be
finished with its near-zero interest-rate policy by next year."
That view was reinforced on Friday when Atlanta Fed
President Dennis Lockhart said the Fed needs to be
"anticipatory" and not wait too long before tightening policy.
With currency movements closely following U.S. bond yields,
markets will focus on a slew of Treasuries auctions this week
totaling $65 billion in debt.
(Additional reporting by Steven C. Johnson in New York;
Editing by Dan Grebler)
