* Dollar struggles to gain against the yen
* Euro hits 1-month high vs dollar, then pulls back
* Australian dollar hits two-year high vs U.S. dollar (Adds comment and details, updates prices)
NEW YORK, Sept 17 (Reuters) - The dollar gained against the euro and was little changed against the yen on Friday on renewed market speculation that an Irish bank was facing debt problems and investors debated the prospects of further currency intervention by the Bank of Japan.
The euro erased earlier gains and fell from one-month highs against the U.S. dollar as the premium investors demand to hold Irish 10-year government bonds rather than benchmark German Bunds rose to a euro lifetime ahead of next week's supply and persistent concerns about the banking sector.
Traders said caution about further intervention, since Japan intervened in the market for the first time in six years on Wednesday, lent support to the dollar if it fell near 85.00 yen.
Investors largely ignored the release of U.S. inflation data for August..
"The rumors about Ireland have had a massive impact in euro and euro/Swiss in the last couple of hours," said Boris Schlossberg, director for currency research at GFT Forex in New York. "It underscores the fragility of the debt situation in Europe. Despite their efforts earlier this year, the fact that Ireland and maybe even Portugal will have to seek lenders of last resort shows the vulnerability of the euro."
The single currency last traded down 0.2 percent at $1.3041, well off the session high of $1.3159, while the dollar was little changed against the yen at 85.77 yen.
German government bond futures hit a session high on Friday as the Irish/German spread widened on persistent worries about Ireland's banking sector.
The Irish credit default swap, a gauge of the cost of insuring the sovereign's debt against default within five years, hit a record high of 425 basis points, about 38 bps up on the day, according to CDS monitor Markit.
Irish bonds were also under pressure ahead of next week's bond auction. Ireland plans to issue up to 1.5 billion euros of 2014 and 2018 bonds on Tuesday.
Against the yen, the euro fell 0.3 percent on the day at 111.82 yen, down from a five-week high struck earlier.
The euro fell 0.7 percent against the Swiss franc to 1.3189 francs a day after the Swiss central bank predicted a big economic slowdown as franc strength hits growth.
BOJ WATCH
The dollar hovered within striking distance of a one-month high against the yen on Friday as the threat of further Japanese intervention kept the yen on the back foot versus major currencies.
"We haven't seen anything on Japan since they came in last Wednesday, but we may see action again on any dip below 85 yen in the dollar," said Brian Dolan, chief currency strategist at Forex.com.
Japanese Prime Minister Naoto Kan and U.S. President Barack Obama are due to meet on Sept. 23 in New York and Japan's currency market intervention will be on the agenda, the Asahi newspaper said.
The dollar faced resistance at the one-month high touched on Thursday just under 86 yen.
It faces further resistance at 86.30 yen, the bottom of the resistance cloud on its Ichimoku chart, but traders also cited stop-loss buy orders above 86.00 and 86.35.
Bank of Japan data on Thursday showed Wednesday's intervention may have totaled around 1.80 trillion yen ($20.98 billion).
The dollar value represents around 4 percent of the daily average market turnover in dollar/yen using the last available data from the Bank of International Settlements.
Elsewhere, the Australian dollar hit a two-year high, boosted by rising gold prices and risk appetite.
The dollar index plumbed a five-week low. (Reporting by Nick Olivari; Additional reporting by Vivianne Rodrigues and Gertrude Chavez-Dreyfuss in New York and Anirban Nag in London; Editing by Leslie Adler)