* Dollar under pressure on ratings concerns, risk-taking
* Dollar index dips to 5-month low, euro approaches $1.40
* Sterling holding up, above $1.58
* Focus on U.S. Treasury auctions next week
(Adds quote, updates prices)
By Tamawa Desai
LONDON, May 22 (Reuters) - The dollar fell on Friday, hitting its lowest in five months against a basket of currencies as concerns about the U.S. sovereign rating accelerated a recent drive to move away from the greenback.
Concern about the triple-A ratings status of the United States after Britain's outlook was downgraded the previous day triggered a triple-whammy selling in U.S. assets, although signs of a rebound in U.S. equities and bonds emerged on Friday.
The dollar's weak technical position deteriorated further as the euro rose to within sight of $1.40 and sterling clawed back losses in the wake of Standard & Poor's move to cut Britain's outlook on Thursday.
"The dollar negatives are stacking up," said Chris Turner, head of FX strategy at ING. "The key driving force behind the dollar bear trend over recent weeks has been fund managers re-allocating into risk and migrating from US T-Bills."
"And now ratings risk has re-emerged as a viable threat."
S&P's move initially hit the pound but then sparked broad selling of U.S. stocks and bonds on fears that record U.S. deficits could lead to the same warning.
After hitting five-month lows in the past three days, the dollar index looks to be heading for its biggest weekly fall since the Federal Reserve launched its large-scale purchases of U.S. Treasuries in late March.
By 1204 GMT, the dollar index, a gauge of its value against six major currencies, was down 0.4 percent on the day at 80.147 after hitting 80.088, a fresh 2009 low.
The dollar index is down more than 5 percent so far in May, shaping for one of its steepest monthly declines over the last quarter of a century.
The euro was up 0.5 percent at $1.3971, near technical resistance at the 55-week moving average of $1.3974, of which a decisive break would push the euro higher. It earlier touched a five-month high of $1.3981.
Sterling was up 0.2 percent at $1.5882, after rising as high as $1.5898, its strongest since early November. Cable is up 4.6 percent on the week so far, on track for its best weekly performance since early February.
Data on Friday showed the UK economy shrank an unrevised 1.9 percent on the quarter for the first three months of the year.
TREASURY TEST NEXT WEEK
Moody's Investors Service on Thursday said it is comfortable with its triple-A sovereign rating on the United States, but the rating was not guaranteed forever.
A test of investor appetite for dollars and dollar assets will come next week when the U.S. Treasury auctions $101 billion of two-, five- and seven-year paper.
The dollar's broad slide took it to a two-month low against the yen after Japanese Finance Minister Kaoru Yosano said on Friday the country is not thinking about intervention in the currency market.
The yen also got a boost after Bank of Japan Governor Masaaki Shirakawa said Japan's economy is no longer in free-fall and he expects the economy to improve sharply in the second quarter, although uncertainties remain. The central bank upgraded its view on the economy for the first time in almost three years. It held rates at 0.1 percent, as expected.
The dollar was down 0.4 percent at 94.04 yen after dipping to 93.87 yen.
More upbeat views of the recession-hit global economy may encourage more risk-taking by investors, weighing on the dollar.
"We still maintain that the dollar is likely to continue to head lower in the months ahead based upon improving financial market conditions rather than overdone sovereign credit concerns," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ.
U.S. financial markets will be closed on Monday for the Memorial Day holiday, while British markets will also be shut for a holiday. (Additional reporting by Jamie McGeever; Editing by Stephen Nisbet/Victoria Main)