* Dollar index hits 8-month low at 78.616
* Euro at 5-month high but hampered by Ireland/Portugal
* Dollar hits post-intervention low against yen (Adds comments, details. Updates prices)
By Vivianne Rodrigues
NEW YORK, Sept 29 (Reuters) - The dollar fell for a fourth straight session on Wednesday, hitting a fresh five-month low against the euro, as traders brace for more weakness amid growing prospects for further U.S. monetary easing.
The euro touched a five-month high at $1.3647
Generally weak U.S. economic data has fueled speculation the Federal Reserve could embark on a second round of quantitative easing, which would be negative for the dollar. That drove the greenback to a two-year trough against the Australian dollar and a 2-1/2-year low versus the Swiss franc.
The next big objective for the single euro zone currency is $1.3692, the high hit on April 12, traders said.
"The dollar currently is in a lose-lose situation where if U.S. data is disappointing, it increases the prospects of Fed easing and that weighs on U.S. rates and the dollar," said Brian Dolan, chief currency strategy at Forex.com in Bedminster, New Jersey. "If the U.S. data comes in better than expected, then risk is back on then the dollar is shunned as a safe-haven currency."
Analysts said the dollar could face further losses as a selling trend takes hold, while the euro would continue rising after becoming resilient to economic and banking problems facing some countries on the periphery of the euro zone.
Also helping the euro was a report on Wednesday showing euro zone economic sentiment unexpectedly rose in September.
"Technically, there are no warning signs that the recent strength in the euro is coming to an end," said Camilla Sutton, chief currency strategist at Scotia Capital in Toronto.
"The upward trend is well intact and even with the feeling that the euro has come too far too fast is widespread, it is too early to fight the dollar weakening trend."
EURO GAINS LIMITED
Gains in the euro, however, were capped after Standard and Poor's downgraded nationalized Anglo Irish Bank's lower tier 2 debt to CCC from B. For details see [ID:nWLA4099]
Further limiting the euro's rise was a report showing that the European Union's banking sector remained vulnerable. [ID:nFAB015779].
The euro has risen about 11 percent against the dollar so far in the July-September quarter and is on track for its biggest quarterly percentage gain in about eight years, according to Reuters data.
The dollar index <.DXY>, meanwhile, was down 0.3 percent at 78.732, not far from an eight-month low of 78.616 hit earlier.
Dollar weakness helped push the Australian dollar to a
two-year high of US$0.9730
The Swiss franc
It later gave up those gains after data showed Switzerland's leading growth indicator, the KOF economic barometer, eased to 2.21 in September from 2.22 in August. [ID:nLDE68S0U3]. The KOF beat forecasts of 2.12, but some in the market had expected an even stronger reading.
The dollar last traded at 0.9764 francs, little changed on the day.
The dollar also struggled against the yen, hitting its lowest since Japan intervened to sell the yen two weeks ago to drive the dollar up from a 15-year low.
Still due on Wednesday, the U.S. House of Representatives is expected to pass legislation to pressure China to let its yuan currency rise more quickly. [ID:nN28172488].
The dollar fell
Many in the market say Japan is likely to intervene again if the dollar threatens the 83 yen area, as Japan's intervention began after it hit a 15-year trough of 82.87 yen. (Additional reporting by Gertrude Chavez-Dreyfuss in New York; Editing by Chizu Nomiyama)