* Dollar bolstered as U.S. Treasury yields rise
* Dollar index rises above 80, breaches 100-day MA
* Options market flags further dollar/yen rise
(Adds comment, updates prices, adds option volume)
By Gertrude Chavez-Dreyfuss
NEW YORK, Dec 8 (Reuters) - The dollar advanced on Wednesday, with further gains likely in the near term, as Treasury yields spiked following a proposed extension of tax cuts that raised growth expectations for the U.S. economy.
For the first time in weeks, euro zone debt concerns were placed on the back burner as investors focused on U.S. economic fundamentals in a thinning market.
Some analysts said the tax cuts could boost U.S. gross domestic product growth by as much as 2 percentage points next year. Such views have propelled 10-year U.S. Treasury yields to 3.295 percent, a level not seen since late June.
Higher yields tend to support the greenback as they reflect stronger growth. They also enhance the attractiveness of some dollar-denominated assets to investors.
"These tax cuts are now regarded as a game changer, which will provide significant support for the U.S. economy next year," said Richard Franulovich, senior currency strategist, at Westpac in New York.
"What this means is that it reduces the probability or the odds of quantitative easing, which is good for the dollar."
In midday New York trading, the ICE Futures' dollar index, a gauge of its performance against a basket of six major currencies, rose 0.3 percent from late U.S. levels to 80.121, moving above its 100-day moving average at 79.981. If sustained that would be a bullish signal.
Market concerns over North Korea firing artillery shells in a suspected military drill also helped the dollar. See
The greenback rose a further 0.8 percent to 84.13 yen after hitting session highs at 84.31.
Traders said there are exporter offers around the 84.40 area, which could limit gains, although there are bids at the 83.80 level.
In the options market, traders said there was high investor demand for bullish dollar/yen option structures, ranging from calls, call spreads, to barrier-type options where there's a pay-off if the pair rises.
The focus has therefore returned to option barriers at 84.50 yen, a breach of which should push implied volatilities higher, traders said. On Wednesday, one-month implied vols in dollar/yen rose to 10.36 percent from a close of 9.75 on Tuesday.
The euro fell 0.2 percent to $1.3239. Its failure this week and last to hold above $1.3400 suggests a probe lower, with a sustained break of $1.3180 opening the way for a test of $1.3060/50.
Bids from Asian central banks and Middle East accounts were seen around $1.3200 and $1.3180, respectively, traders said. Few analysts expect the euro to break below $1.30 anytime soon.
Ireland moved a step closer to securing bailout funds after passing the first in a series of votes on its toughest budget on record, but traders said investors were still likely to sell the euro on any bounce given broader worries about the European Union's ability to keep debt problems from spreading.
Sentiment in the options market remained negative on the euro as well. Investors were still buying new bearish structures, offsetting profit-taking on old bearish trades, although volume has fallen from highs seen two weeks ago, traders said.
Market participants said dollar positioning was neutral overall at the moment and few investors are keen to take on significant long positions.
(Editing by Andrew Hay)