* Euro/dollar hits 2-wk low, dlr index up 0.6 percent
* Europe shares down; banks park funds in Treasuries
* Aussie, kiwi extend losses; on track for 3 percent weekly fall
(Adds comment, details, updates prices)
By Naomi Tajitsu
LONDON, Nov 20 (Reuters) - The dollar rose broadly on Friday, building on the previous day's gains as investors pared back riskier assets, prompting higher-yielding currencies such as the Australian dollar to lose their appeal.
European shares were down as much as around 1 percent on the day while oil prices slipped and gold retreated further from a record high, suggesting that investors were taking risk off the table as the year-end season draws near.
"People have been reducing risk, be it because of Thanksgiving in the U.S. next week or month-end," said Adarsh Sinha, currency strategist at Barclays Capital in London.
He added this was putting selling pressure on sterling, in addition to the Australian and New Zealand dollars.
Investors pared dollar short positions, while the greenback was also supported as banks parked funds in safe-haven assets such as U.S. government bonds.
Rates on short-dated U.S. government paper fell on Thursday, with the two-year bond yield falling to the year's low of 0.68 percent. Three-month bills traded near 1 basis point and six-month bills fell to near record lows, traders said.
That was largely due to funds booking profits and parking their cash in U.S. government bonds to "window-dress" their books ahead of closings at the end of this month and next.
The dollar index was up 0.6 percent on the day at 75.770 , well above a 15-month low of 74.679 touched on Monday. Some traders said gains in the index accelerated following a faulty trade around 75.75.
By 1302 GMT, the euro was down nearly 0.7 percent at $1.4825 , after touching a two-week low of $1.4800.
That level was the lower end of a hefty double-no-touch option at $1.48-1.51 which market participants suspected was rolling off later on Friday.
Traders weren't sure, however, if the option structure remained intact or not. Some said it might still be alive because traded volume at that level was so light, but others said it was done.
Markets showed little reaction to European Central Bank Governor Jean-Claude Trichet who said it was too early to declare the financial crisis was over.
The yen gained broadly, with the euro at 131.80 yen, breaking below its 200-day moving average of around 132.10 yen.
The dollar was flat against the yen, but remained under pressure as short-term speculators tested its downside. It was at 88.99 yen, still within reach of a six-week low of 88.63 yen hit on trading platform EBS the previous day.
Reaction was muted as the Bank of Japan kept interest rates at a record low 0.1 percent as expected, and upgraded its assessment on the economy. That was in contrast to the government who said the economy had fallen back into mild deflation.
BOJ Governor Masaaki Shirakawa said there was no change in the central bank's stance on maintaining very low interest rates to support the economy.
"The government's decision to officially state now that the economy has fallen into deflation is likely an attempt to increase pressure on future BOJ policy decisions to ease monetary conditions further," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ, and that could weaken the yen next year.
The Australian dollar was down 1.3 percent at $0.9070 while the New Zealand dollar fell 1.5 percent to $0.7204, both at two-week lows against the U.S. dollar.
They were also both on track for a roughly 3.0 percent decline on the week.
Activity may be thin next week with a Japanese national holiday on Monday and U.S. Thanksgiving day on Thursday. (Additional reporting by Tamawa Desai; Editing by Ruth Pitchford)