* Dollar falls to 15-year low against the yen
* Dollar index falls to 8-1/2 mth low
* Euro up but struggles as Fitch downgrades Ireland
(Adds with reaction to U.S. data, updates prices, adds quote)
NEW YORK, Oct 6 (Reuters) - The dollar dropped to a fresh 15-year low against the yen and an 8-1/2 month low against a basket of currencies on Wednesday hurt by expectations the U.S. Federal Reserve will further ease monetary policy.
Dollar losses accelerated after a report showed U.S. private employers unexpectedly cut 39,000 jobs in September after an upwardly revised gain of 10,000 in August. [ID:nEAP103400]. The ADP payrolls processor report comes ahead of Friday's government non-farm payrolls report.
A broadly weak dollar helped push the euro to an eight-month high, though the single currency pared gains after Fitch downgraded Ireland's credit rating, renewing concerns about the fiscal health of peripheral euro zone countries. [ID:nWLA4711]
Comments by Chicago Fed President Charles Evans, who was quoted as saying the central bank should do much more to spur the economy [ID:nN05203033], also kept negative dollar sentiment firmly intact. This has intensified speculation the Fed will resume quantitative easing, possibly in November.
"ADP hasn't recently had that great a correlation with the official non-farm payrolls number," said Eric Viloria, currency strategist at Forex.com in New York. "But it all adds to the case for the Fed coming in to create more stimulus."
Midway through the New York session, the dollar dipped as
low as 82.75 yen
Wednesday's low was below the 82.87 level where the Bank of Japan moved to weaken the yen on September 15 but investors were not willing to push the dollar too low against the yen despite the fresh 15-year low in case of more intervention.
The greenback was well below the high of 83.99 yen it hit on EBS after the Bank of Japan (BOJ) announced easing steps on Tuesday.
The dollar was down 0.2 percent against a basket of currencies <.DXY> at 77.568, having fallen as far as 77.556.
EURO GAINS
The euro gained 0.4 percent at $1.3886
The single currency was helped earlier by data showing a surge in German manufacturing orders in August [ID:nLDE6950ZQ], leaving a potential for the single currency to test $1.40.
Technically, the euro's next target is around $1.3896 on EBS, a 61.8 percent retracement of its fall from above $1.51 late last year to its June low. The 200-week moving average stands at around $1.3920.
The dollar also touched a 2-1/2 year low against the Swiss
franc at 0.9620 francs
The dollar's steady drop prompted talk of an escalating global currency war, ahead of the IMF-G7 meetings this weekend, with emerging countries growing increasingly edgy about the flood of capital inflows from advanced economies.
Though he did not mention any names, U.S. Treasury
Secretary Timothy Geithner on Wednesday took a not-so-subtle
dig at China when he said that countries running big trade
surpluses need to let their currencies rise or risk triggering
a destructive round of competitive devaluations.
[ID:nN06208024].
Currency tensions rise interactive map
http://r.reuters.com/jec96p
Reuters Insider interview with French FinMin Lagarde
http://link.reuters.com/geg27p
Encouraged by expectations of more funds being pumped into the market, with commodities expected to be major beneficiaries, commodity currencies rose.
The higher-yielding Australian dollar
A downside number in non-farm payrolls "will cement expectations for additional Fed easing in November likely pushing the dollar down across the board while helping all the other risk assets, such as stocks, emerging currencies as well as the Australian and New Zealand dollars," said Omer Esiner, a chief market analyst at Commonwealth Foreign Exchange, Inc. in Washington. (Additional reporting by Steven C Johnson and Vivianne Rodrigues in New York and Jessica Mortimer in London) (Reporting by Nick Olivari)