* Dollar bolstered as U.S. Treasury yields rise
* Dollar index rises above 80, breaches 100-day MA
* Euro dn 0.3 percent at $1.3221; key support draws near
(Adds quote, updates prices, changes dateline prvs TOKYO/SINGAPORE)
By Tamawa Desai
LONDON, Dec 8 (Reuters) - The dollar extended gains on Wednesday on a spike in U.S. Treasury yields as a proposed extension of tax cuts raised growth expectations for the U.S. economy.
Traders took their cue as the 10-year U.S. Treasury yield rose to 3.25 percent, a level not seen since late June and beyond Tuesday's high of 3.18 percent.
The rise in yields was broadly seen as dollar supportive near-term, despite the adverse fiscal impact of the U.S. government's tax plan.
"At the moment, the market is taking the rise in U.S. yields as a positive for the dollar rather than a supply story," said Adam Cole, global head of FX strategy at RBC Capital Markets. "There are rising expectations for growth, where growth is a scarce commodity."
U.S. yields would likely provide short-term direction, and markets would keep a close eye on a 10-year U.S. bond auction later in the day and a 30-year auction on Thursday, he added.
The dollar index, a gauge of its performance against a basket of major currencies, rose 0.5 percent from late U.S. levels to 80.250, moving above its 100-day moving average at 79.981, which if sustained would be a bullish signal.
The greenback, which made its biggest one-day gain against the yen in nearly three months on Tuesday, rose a further 0.3 percent to 83.72 yen, nearing an 84.00-84.40 resistance band that has capped its recent rally.
The euro fell 0.3 percent $1.3221, nearing the bottom of its recent $1.3200-3450 range. Its failure this week and last to hold above $1.3400 suggests a probe lower, with a sustained break of $1.3180 opening the way for a test of $1.3060/50.
Bids from Asian central banks and Middle East accounts were seen around $1.3200 and $1.3180, respectively, traders said.
Ireland moved a step closer to securing bailout funds after passing the first in a series of votes on its toughest budget on record, but traders said investors were still likely to sell the euro on any bounce given broader worries about the European Union's ability to keep debt problems from spreading.
The dollar also gained as markets were spooked after North Korea fired artillery shells in a suspected military drill.
David Forrester, G10 FX strategist for Barclays Capital in Singapore, said the dollar's outlook appeared well-supported.
"The Obama agreement to extend Bush tax cuts, that places less of an onus on monetary policy to stimulate the U.S. economy," he said.
The correlation between the dollar and long-term Treasury yields has declined recently, Forrester said, which could be due in part to position squeezing, or long liquidation, in the Treasury market and thinning volumes as the year-end draws near.
Still, the yield jump made the dollar more attractive to those chasing higher yields and cuts the yield advantage of currencies such as the Australian dollar. The Australia/U.S. 10-year yield spread narrowed to about 240 basis points, well off a November high of 275.
The Australian dollar fell 0.3 percent to $0.9805, backing further off parity with the greenback hit in November.
Other risk-related currencies were mixed, with the New Zealand dollar down 0.7 percent while the Canadian dollar was little changed against the greenback. (Additional reporting by Charlotte Cooper in Tokyo and Masayuki Kitano in Singapore; Editing by Toby Chopra)