* Euro and sterling slip but off lows hit on Monday
* Focus on if rise in U.S. short-term yields will persist
* US yield rise on talk of Fed rate rise this year helps dlr
* Dollar dips vs yen on Japan exporter selling
By Masayuki Kitano
TOKYO, June 9 (Reuters) - The dollar rose against a basket of currencies on Tuesday but stayed below a two-week high scaled after U.S. jobs data last week stoked expectations for a Federal Reserve rate rise later this year.
The euro dipped but stayed above lows hit on Monday, when ratings agency Standard & Poor's cut Ireland's sovereign credit rating to AA, its second downgrade in three months.
Sterling slipped after choppy trading on Monday, when it ended up rising around 0.4 percent after a sharp initial fall.
Sterling regained ground after sliding on Monday as support for Prime Minister Gordon Brown's ruling Labour Party in European elections on Sunday plunged to its lowest level in a century, adding to uncertainty about his political future.
Traders said the focus was on whether forthcoming U.S. data would underscore the shift in market expectations towards a possible Federal Reserve rate increase later this year, which took hold after last week's jobs data showed that the pace of U.S. job losses slowed sharply in May.
"I think there is a mood among market players of wanting to take a close look at whether a recovery is really taking hold," said a currency trader for a Japanese bank.
Investors are likely to take their cue from indicators such as U.S. retail sales data later this week and moves in U.S. Treasuries, said the trader for a Japanese bank.
The euro fell 0.3 percent to $1.3860, after dropping to $1.3806 on trading platform EBS on Monday, its lowest since late May.
Sterling slipped 0.4 percent to $1.5994 but was well off Monday's low of $1.5803.
The dollar index, which measures the dollar's value against a basket of six major currencies, rose 0.3 percent to 81.042, but had retreated from Monday's high of 81.466, the highest since May 20.
The dollar fell against the yen to 98.20 yen. Traders said the dollar, which had hit a one-month high of 98.90 yen on trading platform EBS on Friday, was dragged down due to selling by Japanese exporters.
DOLLAR, U.S. YIELDS
U.S. two-year yields stood at 1.389 percent, hovering near a seven-month peak hit on Monday.
Market players said such rises in yields based on shifting market expectations toward a possible Federal Reserve rate rise later this year were a positive factor for the dollar.
On Friday, U.S. short-term interest rate futures, which track market expectations for Fed rate policy, had their first meaningful move in months -- bringing forward the possible timing of a Fed rate hike to late 2009 from early 2010.
Another factor to consider may be whether investor risk appetite will strengthen further following a three-month rally in global equities, which came as hopes grew that the worst of the global recession may be over.
Such a recovery in risk appetite had eroded safe-haven demand for the dollar and helped push the dollar index down to a low of 78.334 last week, the lowest since last December.
Market players have taken comfort from signs that economic activity around the world has stopped worsening, but the absolute level is still low, said Kimihiko Tomita, head of foreign exchange for State Street Global Markets in Tokyo.
"Financial markets have jumped the gun and are tilted in the direction of taking risk," Tomita said.
"But now there may be a bit of a question mark about whether it is OK to continue with such moves, that this may not be advisable unless the real economy follows along," Tomita said. (Editing by Michael Watson)