* Euro rises on easing worries over Irish debt crisis
* U.S. factory, jobless data show economic strength
* Dollar hits six-week highs vs yen
(Adds quote, updates prices, changes byline)
By Gertrude Chavez-Dreyfuss
NEW YORK, Nov 18 (Reuters) - The euro firmed on Thursday, on track for its largest one-day gain against the U.S. dollar in two weeks, as investors became more optimistic about a rescue plan for debt-stricken Ireland.
Gains in the euro, however, may prove short-lived given concerns troubles in that country may spread to other peripheral economies in the euro zone such as Portugal and Spain.
Problems in Ireland overshadowed generally upbeat U.S. economic reports that propelled the dollar to a six-week high against the yen. Data on Thursday showed a decline in jobless claims to a two-year low while factory activity in the U.S. Mid-Atlantic region grew more than expected in November. For details, see [ID:nN18277350]
"At this point, Europe is going to address the Irish problem," said James Dailey, chief investment officer and senior portfolio manager at TEAM Asset Strategy Fund, a mutual fund based in Harrisburg, Pennsylvania.
"I think what you saw over the last two weeks with Angela Merkel (German Chancellor) ... talking about debt holders having to share in the losses and backtracking from that is indicative ... that (Europe) is likely to monetize this problem," said Dailey, who oversees assets of about $45 million.
The euro earlier climbed about 1.0 percent versus the dollar and yen as the cost of insuring Irish debt against default fell after Ireland's central bank chief said he expected Dublin to receive tens of billions of euros in loans from European partners and the IMF. [ID:nLDE6AH0HV]
Analysts cautioned, however, that lingering worries about other debt-laden European countries will likely continue to weigh on the euro, which has lost about 3 percent this month as funds liquidated long positions.
FURTHER EURO DOWNSIDE SEEN
TEAM's Dailey said he expects further downside in the euro, falling anywhere between $1.30-$1.32. "We'll probably see a spike because the decline has been pretty much linear. When that happens, we can go back up to the $1.36-$1.37 level and that would probably be an opportune time to sell the euro again."
Year-end flows could further support the dollar versus the euro. Recent U.S. data, including Thursday's regional manufacturing and leading indicators reports, has showed an improving economic picture, which could spur investors to close out short dollar positions ahead of the end of the year.
The euro
Traders said stop-losses were triggered at $1.3630. Resistance is at $1.3750, followed by $1.3765, the 38.2 percent retracement of this month's fall.
It also rose 1.1 percent against the yen
Still some analysts said even if a quick resolution is reached over Ireland, market participants would fret about other peripheral euro zone economies and their debt levels, with Portugal thought to be in the market's sights.
"The markets are not wholly convinced that contagion issues
will be contained. That's why we're not seeing a really
aggressive rally in the euro. Otherwise, the euro would be up
at around $1.38 or $1.39," said Dean Popplewell, chief
strategist of FX brokerage OANDA in Toronto. "We are certainly
seeing interest to actually sell euros on rallies."
How Ireland might tap funds: [ID:nLDE6AE1S3]
Euro zone debt struggles: http://r.reuters.com/hyb65p
Multimedia coverage: http://r.reuters.com/hus75h
Against the yen
Optimism about Ireland also bolstered risk appetite toward
equities and commodities and drove higher-yielding currencies
up. The Australian