* Dollar rises broadly after stronger U.S. consumer data
* Dollar, risk assets relationship breaks down
* Moody's sees no threat to UK, US top rating for now (Updates prices, adds quotes)
By Wanfeng Zhou
NEW YORK, Dec 11 (Reuters) - The dollar rose to a two-month high against the euro on Friday after stronger-than-expected U.S. consumer data boosted expectations the Federal Reserve would raise interest rates sooner rather than later.
U.S. retail sales posted the largest advance since August last month, while consumer sentiment improved in early December, stoking optimism about a recovery in the world's largest economy.
"More of this data will have people thinking the Fed may raise rates a little bit faster than initially expected, which means access to cheap money will start to wind down," said Melvin Harris, market strategist at Easy Forex in New York.
The prospect of prolonged low U.S. interest rates has undermined the dollar in recent months as investors borrow in the low-yielding greenback and reinvest the money in stocks, commodities and higher-yielding currencies in search of returns.
In mid-morning trading, the euro fell as low as $1.4600, the lowest since early October, and last traded at $1.4606, off 0.9 percent. It was partly weighed down by persistent concerns over the fiscal situation in Greece after a ratings agency downgraded the country's credit rating earlier this week.
Against the yen, the dollar rose 1.6 percent to 89.61 yen. The ICE Futures U.S. dollar index, which tracks the greenback versus a basket of six currencies, was up 0.7 percent at 76.57.
The stronger-than-expected U.S. data also led to a breakdown in the inverse relationship between the dollar and risky assets that have existed over much of the past year.
Good data has tended to pressure the greenback in recent months as investors took on riskier, higher-yielding investments and cut demand for the safe-haven U.S. currency. Stocks also gained on Friday.
"I think the risk appetite trade we've been talking about for months is breaking down and I think the correlation between positive U.S. data and dollar strength is going to take hold," Harris said.
Sterling gained after Moody's Investors Service said that while Britain's borrowing and debt levels could threaten its Aaa rating over the next few years, it would not happen right away.
The top sovereign credit rating of the United States is also not under threat of a downgrade right now, Moody's said.
The pound hit a session peak of $1.6338, according to Reuters data, before giving up gains to trade 0.3 percent lower at $1.6219 as the dollar rallied. Sterling hit a near eight-week low below $1.62 on Wednesday on concern about Britain's precarious fiscal position. (Additional reporting by Steven C. Johnson and Gertrude Chavez-Dreyfuss; Editing by Dan Grebler)