* Euro off 1-mth low, dollar slides vs yen
* Fed's Bernanke and Dudley say rates will stay low
* Japan to spend Y7.2 trln on stimulus; Obama measures eyed
By Kaori Kaneko
TOKYO, Dec 8 (Reuters) - The dollar fell on Tuesday and the yen rose after senior Federal Reserve officials curbed speculation of a quick rise in U.S. rates that had sent the greenback smartly higher after a promising jobs report last week.
Traders said Japanese exporters sold dollars for yen, pushing the U.S. currency below 89 yen and dragging higher yielding currencies and the euro down against the yen as well.
Fed Chairman Ben Bernanke said the U.S. economy still faced headwinds and unemployment could stay high for some time, playing down the impact of Friday's payrolls report and helping send yields on shorter-dated Treasuries lower..
William Dudley, president of the New York Federal Reserve, later followed up, saying the economy was still weak and reiterating that rates would remain low for an extended period.
Friday's jobs data had led markets to bet U.S. rates could rise by mid-2010 and the dollar belted up to its strongest levels in a month against the euro and yen. By Tuesday it was 2 percent down from its peak against the yen as the rates optimism faded.
"Bernanke's remarks reminded people that the economy is not rosy yet," said Jun Kato, senior chief analyst at Shinkin Central Bank Research Institute.
The dollar index fell 0.2 percent to 75.651. The euro edged up 0.1 percent to $1.4842 after hitting a one-month low on Monday of $1.4756 on trading platform EBS.
The greenback dropped 0.8 percent to 88.84 yen, having shed 1 percent on Monday.
Support was likely around 88.50 yen but a breach there would see it fall towards 88 yen, a trader at a European bank said.
The dollar hit a 14-year low of 84.82 yen at the end of November as worries about Dubai's debt saw investors unwind risk trades funded in yen, which then sent dollar/yen down.
"It was unreasonable that U.S. nonfarm payrolls for a single month alone raised such optimism, as concerns persist over Dubai debt problems and the U.S. banking sector is not necessarily in good condition," Kato said.
A Dubai newspaper reported state-controlled Dubai World was discussing a new date with its bank creditors for debts maturing on Dec. 14.
YIELDS AND STIMULUS
Bernanke's comments reversed some of the rise in Treasury yields that followed Friday's jobs report. Higher Treasury yields tend to support the dollar against the yen.
"This means U.S. yields are likely to stay fairly unattractive for some period and that should give a boost to currencies like the Aussie," said Richard Grace, chief currency strategist at Commonwealth Bank of Australia.
The dollar has lost more than 14 percent against a basket of currencies since its March high on the prospect that U.S. interest rates could remain low for a while. This prospect has fuelled a view that it was becoming the preferred funding currency for leveraged carry trades.
The three-month yen interbank rate dropped below the equivalent dollar rate in August. Since Japan's central bank took easing steps last week, the yen rate has slipped but it remains above the dollar rate.
High-yielding currencies like the Australian and New Zealand dollars held steady. The Aussie stood at $0.9135, barely changed on the day ahead of speech from Reserve Bank of Australia Governor Glenn Stevens at 0925 GMT.
Japan's coalition government agreed to spend 7.2 trillion yen ($80.6 billion) on economic stimulus steps to avoid slipping back into recession next year.
The package contained few surprises but the government warned that excessive and disorderly currency moves would hurt the economy and said it would watch exchange-rate moves carefully.
Market sources said in November Japanese authorities had checked rates with banks as the dollar plunged, coming their closest in more than four years to intervening.
U.S. President Barack Obama is expected to lay out policy proposals to combat double-digit unemployment in a speech on Tuesday, tackling an economic problem that has become a political drain on his administration.
If the plans buoy U.S. shares, this could encourage investors to shift back into riskier assets, which in turn would weigh on the dollar, a trader at a Japanese trust bank said. (Additional reporting by Anirban Nag in Sydney; Editing by Joseph Radford)