* Dollar edges up vs yen, rises vs euro
* Focus shifting to Fed and chances of more easing
* Australian dollar hits two-year high vs U.S. dollar (Updates prices, adds comment)
By Steven C. Johnson
NEW YORK, Sept 17 (Reuters) - The euro fell on Friday as European debt worries and weak U.S. consumer data enhanced the dollar's safe-haven appeal, while fear of Japanese intervention kept the yen near a one-month low against the U.S. currency.
The euro fell from session highs above $1.31 when a newspaper said Irish banks might need a bailout and remained weaker on the day after Ireland's finance ministry said there was no truth to the report [ID:nWLA3214].
"I'd expect increased volatility in euro/dollar," said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto. "We'll probably see more of this where there are rumors in the market about specific countries, but even if they're denied, in the bigger picture, the market is going to remain concerned about peripheral European debt."
Trading was more subdued when it came to the dollar against the yen, with the U.S. currency moving in a narrow range just below a one-month peak of 86 yen. Dealers said trading was limited by fear that the Bank of Japan, which sold yen in the market for the first time in six years on Wednesday, could intervene again if the dollar were to approach 85 yen.
The technical picture also appeared to support that view for now, with the dollar's 79-day moving average, often a strong predictor of support levels, reaching 85.02 yen.
"We haven't seen anything on Japan since they came in Wednesday, but we may see action again on any dip below 85 yen," said Brian Dolan, chief strategist at Forex.com.
BEST WEEK FOR DOLLAR/YEN SINCE APRIL
The dollar, which fell to a 15-year low beneath 83 yen before Japan intervened, was up 1.8 percent against the yen since Monday, its best week since late April.
On Friday, it was unchanged at 85.78 yen
The Ireland scare pushed the premium investors demand to hold Irish 10-year government bonds rather than benchmark German Bunds to a euro lifetime high. [GVD/EUR].
The euro got some help after an International Monetary Fund spokesperson said the IMF did not think Ireland would need financial assistance, as well as from bids at $1.3020. [ID:nWEN9970]
The Australian dollar hit a two-year high
A RACE TO THE BOTTOM, AND U.S. MAY JOIN
BoJ data showed Wednesday's intervention may have totaled 1.8 trillion yen ($20.98 billion). That is about 4 percent of daily turnover in the currency pair, according to data from the Bank of International Settlements. [ID:nTKW007123].
Following the BoJ lead, central banks in Brazil, South Korea and elsewhere stepped up efforts to weaken their currencies and maintain trade competitiveness in an uncertain economic environment. For more, see [ID:nN15168058] and [ID:nLDE68F12Q]
U.S. Treasury Secretary Timothy Geithner vowed this week to use a Group of 20 summit to pressure China to let its yuan strengthen more quickly [ID;nN16269571].
Analysts warn, though, that these efforts may be for naught if the Federal Reserve decides to pump more money into the U.S. economy this year to boost a faltering recovery. That would depreciate the dollar and will likely be a topic of speculation ahead of next week's Fed policy meeting.
"It seems there's a covert race on to see who can depreciate their currency the fastest," said Dean Popplewell, chief strategist at FX brokerage OANDA in Toronto.
He said high unemployment and weak growth mean the Fed will pull the trigger on more easing by November, which couldwipe out Japan's attempt to weaken the yen.
"That's why it's so surprising that Japan intervened unilaterally, because dealers are just sitting back and thinking, 'You're not going to get much bang for your buck' if the Fed comes in," he said. "Their efforts may just drown in all that liquidity out there."
But Michael Hasenstab, a portfolio manager at Templeton Global Bond Fund, said Japan may succeed, as extremely weak growth and high fiscal deficits should eventually lead to more natural yen weakness.
"While historically intervention has very mixed results and thus is unlikely to be the long-term determinant of the yen's value, in the short term it certainly caps the upside of the yen and over the longer term relative macro conditions will likely take over to weaken the yen."
(Additional reporting Nick Olivari and Wanfeng Zhou; Editing
by Dan Grebler)