* Dollar rises broadly, boosted by higher U.S. yields
* Doubts over euro zone policy measures dent sentiment
* Sterling falls after BoE leaves interest rates steady (Recasts, updates prices, adds comment, details, changes byline, dateline)
By Steven C. Johnson
NEW YORK, Feb 10 (Reuters) - The dollar rose broadly on Thursday, boosted by better-than-expected U.S. employment data, while the euro slumped as investors worried about Europe's lack of progress in tackling a sovereign debt crisis.
Sterling fell against the dollar after the Bank of England left interest rates at a record low despite chatter about a possible hike, and traders said a recent spike in U.S. yields set the dollar up for further near-term gains.
"I think this can continue as the run-up in yields is dollar-supportive and now we're encountering a renewed sense of fear about euro zone debt issues," said Brian Dolan, chief strategist at Forex.com in Bedminster, New Jersey.
The euro fell 0.9 percent to $1.3605, with support seen around the $1.3541 100-day moving average.
Options market signals, though, suggested that further volatility in euro-dollar trading may be limited, with the one-month option hitting a five-month low near 10.45 percent.
Dolan said it would likely take a break of the $1.3450 area before "people start targeting $1.30 in the weeks ahead."
The dollar also rose 0.9 percent at 83.16 yen, its highest since Jan. 27 and seventh straight daily gain. Dolan said higher U.S. yields could lift it to the high 80s, an area last seen in July.
Sterling fell 0.4 percent to $1.6033, off a session low of $1.6011.
U.S. JOBLESS CLAIMS FALL
U.S. growth picked up in late 2010 and expectations of even brisker expansion this year have driven up bond yields to about nine-month highs, though the U.S. Federal Reserve has failed to signal plans to cut short a $600 billion bond-buying program.
Adding to the optimism, U.S. claims for first-time jobless benefits fell in the latest week far below forecasts, data showed.
The euro, which hit a 12-week high above $1.38 earlier this month, struggled as investors drove Portuguese bond yields to their highest level since the currency was introduced in 1999.
Portugal is considered at risk of becoming the next euro zone country to need a bailout, and investors are anxious about a lack of progress by policymakers in addressing a euro zone debt crisis. European leaders are to meet next month to discuss bolstering a 440-billion euro bailout fund for troubled countries.
Higher-yielding debt from some euro zone issuers came under selling pressure, but traders said the European Central Bank (ECB), which had talked about rising price pressures lately, stemmed the increase by stepping up its bond purchases.
"There are downside risks that the ECB may not be prepared to hike rates, (with) the potential that bondholders may be forced to take debt haircuts," said Raghav Subbarao, currency strategist at Barclays Capital.
Bundesbank chief Axel Weber, a known policy hawk, will not succeed Jean-Claude Trichet as president of the European Central Bank, according to reports Wednesday, adding to doubts that euro zone rates would rise in the near future.