* Dollar gains against the yen in early New York trade
* Euro hits 1-month high vs dollar, pulls back
* Australian dollar hits two-year high vs U.S. dollar
(Adds comment, adds details, updates prices)
NEW YORK, Sept 17 (Reuters) - The dollar rallied against the euro and the yen on Friday as poor U.S. consumer sentiment data eased risk appetite against the backdrop of possible currency intervention by the Bank of Japan.
The euro vacillated in a range of more than a cent against the dollar on the final trading day of the week amid fears about the Irish banking sector. An Irish Finance Ministry spokesman said there was no truth to rumours Ireland would need help to deal with its finances..
After Japan intervened in the market to sell yen for the first time in six years on Wednesday, traders said caution about further intervention lent support to the dollar if it fell near 85.00 yen. Analysts said yen price action in a day of risk aversion gave the Bank of Japan some credibility in the short term regarding its intervention strategy.
"I'd expect increased volatility in euro/dollar as there is still a lot of uncertainty about these re-emerging European debt problems," said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto. "We'll probably see more of this where there are rumors in the market about specific countries, but even if they're denied, in the bigger picture, the market is going to remain concerned about peripheral European debt issues."
The euro moved between gains and losses against the dollar before moving lower as U.S. consumer sentiment unexpectedly worsened in September to its weakest level in more than a year.. It last traded down 0.3 percent at $1.3042 with a session peak of $1.3159 and low of $1.3019.
The euro briefly recovered when an International Monetary Fund spokesperson said the IMF did not think financial assistance would be needed for Ireland.
The euro was also pressured as the premium investors demand to hold Irish 10-year government bonds rather than benchmark German Bunds rose to a euro lifetime ahead of next week's supply and concerns about the banking sector.. Against the yen, the euro fell 0.1 percent on the day at 111.97 yen, down from a five-week high struck earlier. The euro fell 0.8 percent against the Swiss franc to 1.3177 francs a day after the Swiss central bank predicted a big economic slowdown as franc strength hits growth.
BOJ WATCH
The dollar rose 0.1 percent against the yen to 85.85 yen, within striking distance of a one-month high against the yen as the threat of further Japanese intervention kept the yen pressured.
"We haven't seen anything on Japan since they came in last Wednesday, but we may see action again on any dip below 85 yen in the dollar," said Brian Dolan, chief currency strategist at Forex.com.
Japanese Prime Minister Naoto Kan and U.S. President Barack Obama are due to meet on Sept. 23 in New York and Japan's currency market intervention will be on the agenda, the Asahi newspaper said.
Analysts said at leat for now, the Bank of Japan intervention appeared successful.
"The risk on/risk off trade is still around but not in the yen, it's all in the euro," said Joseph Trevisani, chief analyst at FX Solutions in Saddle River, New Jersey. "The Japanese at least temporarily have achieved what they wanted and frozen the move in the yen."
The dollar faced resistance at the one-month high seen on Thursday just under 86 yen. Further resistance lies at 86.30, the bottom of the resistance cloud on its Ichimoku chart, but traders also cited stop-loss buy orders above 86.00 and 86.35.
Bank of Japan data show Wednesday's intervention may have totaled around 1.80 trillion yen ($20.98 billion). The dollar value represents around 4 percent of the daily average market turnover in dollar/yen using the last available data from the Bank of International Settlements. Elsewhere, the Australian dollar hit a two-year high, boosted by rising gold prices and risk appetite. The dollar index plumbed a five-week low. Chavez-Dreyfuss in New York) (Reporting by Nick Olivari; Editing by Andrew Hay)