* Worries on Ireland, Portugal debt mount, knocking euro
* Dollar dips below 81.00 yen but recovers
* Risk trade may face reversal as year winds down (Updates prices, adds comment, changes byline)
By Julie Haviv
NEW YORK, Nov 9 (Reuters) - The euro lost value against the U.S. dollar for a third straight session on Tuesday as debt risks grew in the periphery of the euro zone, spilling over into foreign exchange markets and driving up the greenback.
The euro gyrated between gains and losses as investors worried about Irish and Portuguese debt and continued to hedge sizable bets against the U.S. dollar. Widening government bond spreads relative to bunds in the peripheral euro-area continued to weigh on the single European currency.
"The problems in the euro zone that emerged this past spring were never really addressed, and now they are coming back to the surface," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York.
"The foreign exchange market is only capable of focusing on one thing at a time," he said. "So during the time when the focus was on the U.S. and Fed easing, problems were already smoldering in Europe."
The euro last changed hands at $1.3835
Chandler said the euro will remain under pressure and expects it to end the year in the $1.33 area.
The euro hit its recent high after the U.S. Federal Reserve said it would buy $600 billion of Treasuries by mid-2011 to lower interest rates and reinvigorate a sluggish U.S. economy.
The cost of protecting government debt against default in Ireland and Portugal has risen in the past week, although it eased ahead of a Portuguese bond auction. For details, see [ID:nLDE6A8169]
Irish debt came under pressure this week on fear the government won't be able to cut spending as much as planned next year, which could complicate efforts to sell fresh debt.
For a column on euro zone debt see [ID:nLDE6A71VY]
A Chinese credit rating agency Tuesday cut its rating on the United States, citing doubts about the U.S. ability to repay its debts, though the move had little impact on the dollar. The major ratings agencies still give the United States the top rating of AAA, although some have warned about pressures from the rising debt burden on the rating's longer-term outlook.
Greek, Irish bond yield spread http://r.reuters.com/tuk54q
G20 battle lines: http://r.reuters.com/jux34q
Gold price performance: http://link.reuters.com/juz44q
Trade, currency tensions simmer pre-G20 [ID:nSGE6A801L]
RISK TRADE GETTING LONG IN THE TOOTH
The euro was little changed at 112.92 yen
Traders said rising U.S. bond yields helped lift the dollar/yen. The U.S. 30-year Treasury bond yield rose above its 200-day moving average of 4.20 percent for the first time since May. [ID:nNYD003725]
Sterling also fell 0.7 percent to $1.6023
Low interest rates in developed countries have stoked demand for higher-yielding currencies and assets from fast-growing emerging market economies.
Emerging governments say this causes inflation in their economies, and some have tried to stem foreign money inflows.
Analysts said that means investors should be wary of a sudden pullback in high-yielding emerging market assets.
Traders said some macro accounts and commodity trading advisers, who are short-term players, were already closing their long euro and short dollar forward and futures positions ahead of their book closing at the end of this month or next.
Such a pullback in risk occurred last November, and Citigroup technical strategists said the a similar "momentum divergence" on dollar index charts suggests a rerun of that move may be in store.
The dollar index <.DXY> was up 0.6 percent Tuesday at 77.475, but Citi said charts are "highlighting the risk of a bounce, possibly as far as 79.31, the 200-day moving average." (Additional reporting by Steven C. Johnson in New York; Editing by Padraic Cassidy)