* Euro hits 5-month high vs dollar, buoyed by ECB tender
* Worries about more QE in U.S. offset Ireland concerns
* Dollar index hits 8-month low; month-end flows dominate
* Dollar index on track for biggest quarterly fall in 8 yrs
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By Jessica Mortimer
LONDON, Sept 30 (Reuters) - The euro hit a five-month high against the dollar on Thursday after banks borrowed less than expected at a European Central Bank tender, reversing earlier losses on concerns about Irish fiscal and banking problems.
Euro gains helped push the dollar index to an eight-month low against a basket of currencies, while the yen rose broadly on reported exporter demand for yen on the last day of Japan's fiscal half-year. This sparked concerns Japan may step in again to curb gains in its currency.
In a day also of heavy month- and quarter-end flows, investors opted to buy back the euro after it fell earlier on Ireland disclosing a worst case price tag of more than 50 billion euros to bail out its troubled banks.
Analysts and traders said the market focus remained on the prospect of further quantitative easing measures in the United States and possibly in the UK, with the ECB appearing to be on a gradual path towards removing policy stimulus.
Banks borrowed 29.4 billion euros of six-day ECB funds on Thursday, ensuring a far bigger than expected drop in excess liquidity as 225 billion euros of ECB loans expire, signalling a healthier outlook for money markets.
This pushed euro zone interest rate futures lower, equating to an increase in rate expectations.
"The euro started going down on the Ireland news, but it did not go far enough under $1.36 to be sustained," said Kit Juckes, currency strategist at Societe Generale.
"If the ECB is even inclining towards an exit (from ultra-easy monetary policy measures) then they do stand out as winners when QE looks likely from the U.S., UK and possibly Japan."
At 1049 GMT, the euro was up 0.2 percent at $1.3655, having pushed through a reported options barrier at $1.3650 to hit a five-month high of $1.3676 on the EBS trading platform. The euro has risen almost 12 percent versus the dollar over the course of this quarter.
The dollar index fell to an eight-month low of 78.441. It has fallen more than 8 percent over the quarter, leaving it on track for its biggest quarterly fall since the second quarter of 2002.
"There is no indication that the recent dollar slide has come to an end and people are still happy to put on short dollar positions," said Niels Christensen, currency strategist at Nordea in Copenhagen.
Month-end flows benefiting the yen and sterling pushed the single currency down 0.2 percent to 113.79 yen and down 0.4 percent to 85.94 pence.
Traders reported euro/sterling sales related to an annual rebate Britain receives from the European Union.
YEN INTERVENTION WORRIES
Against the yen, the dollar fell 0.5 percent to 83.28 yen, taking it very close to a 15-year low of 82.87 hit on trading platform EBS earlier this month before Japan intervened and heightening worries they may step in again.
The Ministry of Finance said Japanese authorities sold 2.1249 trillion yen ($25.37 billion) in currency intervention in the latest month to Sept. 28.
Japan's deputy finance minister Mitsuru Sakurai said the government was ready to take decisive steps against yen rises. Traders said intervention wariness would rise if the dollar fell below 83.00.
The market is also waiting to see if the Bank of Japan takes further easing steps to support the economy and counter the impact of the rising yen at its Oct. 4-5 policy meeting.