GLOBAL MARKETS-Stocks drop, dollar up on European uncertainty

* Stocks lower despite Irish financial bailout

* Euro falls on worries of spreading debt problems

* US debt prices rise on risk-aversion, Fed purchases (Update with European markets' close, quote)

By Manuela Badawy

NEW YORK, Nov 22 (Reuters) - Stocks fell while the dollar rose against the euro on Monday as initial optimism over Ireland's debt bailout gave way to concerns about the government's future and problems elsewhere in the euro zone.

Safe-haven U.S. government bond prices rose with help from another round of debt purchases by the Federal Reserve under its latest plan to aid the U.S. economy. Gold, oil and other commodities fell.

The euro reversed gains earlier on Ireland's rescue by the European Union and the International Monetary Fund, which was aimed at tackling its banking and budget crisis.

But the unpopular Irish government began to unravel after a call by Ireland's junior party for an early election in January, with the budget in doubt. For details, see [ID:nLDE6AL00M].

"That just adds to the uncertainty, creating political turmoil at the time you have financial turmoil," said Scott Marcouiller, chief technical market strategist at Wells Fargo Advisors in St. Louis.

In addition, investors worried the rescue might not be effective in the long term and wouldn't stop markets from targeting Portugal, also facing severe debt problems. [ID:nLDE6AL04W].

"The risk of Ireland is somewhat off the table, but it puts the risk onto Portugal and possibly Spain, which represents a much bigger risk for the euro," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

Market participants say Portugal may be the next country forced to seek a bailout, which could reignite concerns about the stability of the euro zone.

The dollar was up against major currencies, with the U.S. Dollar Index <.DXY> up 0.31 percent at 78.748.

The euro was down 0.56 percent at $1.3608. Against the Japanese yen, the dollar was up 0.02 percent at 83.47.

For an overview of Europe's debt struggles, click:

http://r.reuters.com/hyb65p

For an interactive euro zone debt crisis timeline, click:

http://link.reuters.com/nyx95q

STOCKS IN US, EUROPE DROP

European shares fell on worries other euro zone peripheral countries will need to be bailed out, with banks leading declines. The FTSEurofirst 300 <.FTEU3> index of top European shares closed down 0.7 percent

World stocks fell on uncertainty about the outcome of Ireland's debt bailout and possible contagion of debt problems to Portugal and Spain.

The MSCI world equity index <.MIWD00000PUS> was down 0.66 percent while U.S. stocks fell, led by financial and energy shares, with the Dow Jones industrial average <.DJI> dropping 134.07 points, or 1.20 percent, at 11,069.48.

The Standard & Poor's 500 Index <.SPX> fell 13.28 points, or 1.11 percent, at 1,186.45. The Nasdaq Composite Index <.IXIC> was down 11.81 points, or 0.47 percent, at 2,506.31.

Bucking the trend, Apple Inc and Amazon.com Inc rose.

Trading volume is expected to be down this week in light of the U.S. Thanksgiving Day holiday on Thursday.

In Tokyo, the Nikkei average <.N225> ended the day up almost 1 percent, to a fresh five-month closing high.

The loan package for Ireland is expected to total 80 billion to 90 billion euros while the government puts the finishing touches to a 15 billion euro ($20.5 billion) austerity plan.

"Once we have the detail, we will see how well it works. But I am a little bit afraid that attention will shift towards Portugal and Spain," said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets in Brussels.

U.S. Treasuries rose as investors turned to safe-haven government debt while Fed bond purchases also helped provide a bid.

But putting a cap on gains was this week's $99 billion in coupon-bearing supply, which kicks off with a $35 billion auction of two-year notes.

The benchmark 10-year U.S. Treasury note was up 11/32, with the yield at 2.8348 percent. The 2-year U.S. Treasury note was down 1/32, with the yield at 0.5171 percent. The 30-year U.S. Treasury bond was up 23/32, with the yield at 4.2048 percent.

The Fed bought $8.26 billion in 8-year to 10-year debt as part of its quantitative easing program that will include a total of $600 billion of purchases by the middle of next year.

In energy and commodities prices, crude oil fell $1.14, or 1.39 percent, to $80.84 per barrel.

Spot gold prices fell 85 cents, or 0.06 percent, to $1352.10 an ounce, as the pick-up in the dollar undermined demand from investors for perceived safe-haven assets such as gold, which tends to weaken when the U.S. currency rises. (Additional reporting by Leah Schnurr, Nick Olivari, Chris Reese and Chuck Mikolajczak in New York, Atul Prakash and William James in London; Editing by Kenneth Barry)