* Dollar hits 6-wk high vs euro and basket of currencies
* Previous day's jump in Treasury yields supports dollar
* Dollar may rise further on year-end position unwinding
* Greenback rises above 55-day MA vs yen and Swiss franc
By Masayuki Kitano
TOKYO, Nov 16 (Reuters) - The dollar touched a six-week high against the euro on Tuesday, extending gains after U.S. Treasury yields jumped as investors closed out bets before market liquidity declines towards the year-end.
The 10-year U.S. Treasury yield jumped about 17 basis points on Monday and hit a three-month high near 2.97 percent, helping give a broad lift to the greenback.
The dollar index, which measures the dollar's value against a basket of currencies, hit a six-week high of 78.743 earlier, and the euro touched a six-week trough of $1.3560 on trading platform EBS.
Although the euro later trimmed its losses to stand at $1.3610, up 0.2 percent from late U.S. trade on Monday, traders said the euro looked vulnerable due to the potential for more short-covering in the dollar as the year-end approaches.
"Currencies such as the euro and the Australian dollar are likely to be sold while the dollar is bought back. That is the type of move we could see as a part of position unwinding," said a trader for a Japanese trust bank.
The euro bounced back after dipping to just below its 55-day moving average, now at $1.3567, and the top of the cloud on daily ichimoku charts at $1.3565.
A trader for a major Japanese bank said the euro was supported by talk of buying on dips by Asian players. Traders may also have bought the euro after its drop stalled right near those support levels, he said.
A clear breach of such support, however, could open the way for a further decline in the euro.
Potential downside targets include $1.3463, a 50 percent retracement of the euro's September-November rally, and $1.3364, a 38.2 percent retracement of its June-November rally.
Market players were also keeping an eye on worries about fiscal troubles in Ireland and Portugal and meetings of European finance officials on Tuesday and Wednesday.
The main focus in the near term, however, was on U.S. bond yields and seasonal position unwinding, traders said.
The recent sell-off in Treasuries and short-covering in the dollar has gained steam ahead of next week's U.S. Thanksgiving holiday.
The fact that now is right around the 45-day advance notice deadline thought to be used by some hedge funds for investors to seek fund redemptions by the year-end has likely exacerbated such moves as well, traders say.
"U.S. bonds were sold at a time when seasonal position unwinding tends to appear and the dollar has been bought back," said a trader for a European bank in Tokyo.
The dollar's fate has had a close correlation to U.S. yields and their gap with rates on other currencies, as increases in U.S. yields -- other things being equal -- tend to help the greenback by making dollar investments more attractive.
That yield gap has recently moved in the dollar's favour as a result of the sell-off in Treasuries. The yield gap of 10-year U.S. Treasuries over 10-year JGBs is now near 186 basis points, up from about 164 basis points last Thursday..
The dollar was steady against the yen at 83.08 yen, hovering near a six-week high of 83.28 yen marked on trading platform EBS on Monday.
The dollar's 55-day moving average against the yen now lies at 82.83 yen, offering support. It faces resistance on daily ichimoku charts at 83.17 yen, the bottom of the cloud, and then at the top of the cloud at 84.13 yen.
Gains in the dollar could be limited during Asian trading, since Japanese exporters seem likely to sell it, said the trader for a European bank. (Additional reporting by Wayne Cole and Reuters FX analyst Krishna Kumar in Sydney; Editing by Michael Watson)