* Stocks, commodity currencies fall in risk-averse market
* ECB buying push bond yields lower, initially lifts euro
* Euro zone official says no aid for Italy under EFSF
(updates prices, adds comment)
NEW YORK (Frankfurt: A0DKRK - news) , Nov 17 (Reuters) - The dollar advanced for a fourth straight session on Thursday in a risk-averse market that saw stocks and commodities sell off on concerns the banking and fiscal problems of the euro zone's peripheral countries could spread to healthier economies in the region.
Commodity (Euronext: COMIN.NX - news) currencies such as the Australian, Canadian, and New Zealand dollars, including emerging market units, posted sharp losses against the safe-haven U.S. dollar as well, as investors grew frustrated the two-year old debt crisis remained unresolved.
"I think this euro zone crisis could worsen before it gets better," said James Keegan, chief executive and chief investment officer at Seix Investment Advisors in Upper Saddle River, New Jersey.
Keegan, who oversees about $26 billion in assets, added that the threat of contagion is real, and it is "questionable whether the euro zone as an entity would survive."
Bond yields in some debt-ridden euro zone countries such as Italy dropped from extreme levels, which suggested easing investor anxiety. That initially underpinned the euro, but the support faded on more negative developments in Italy.
One was on a comment from a euro zone official saying there are no plans for any financial assistance program for Italy under the euro zone bailout fund. [ID:nP6E7L300I].
By late afternoon, the dollar index, a gauge of its value against six currencies, rose 0.4 percent to 78.301 .
"For now, the dollar will only rally when there's a crisis," said Kit Juckes, head of foreign exchange at Societe Generale in London. "(And) the world is in crisis as the euro zone's leaders fight for the single currency's survival."
He arbitrarily placed the dollar's peak in March 2012 as he cannot see how the crisis will be resolved before Christmas. "But crises, by definition, don't last forever. Dollar strength will be temporary, though it may also be very violent."
The euro was little changed versus the dollar at $1.34610, having risen as high as $1.35403 on trading platform EBS. It had earlier fallen to a five-week low of $1.34210. Below there, key downside target lies near the Oct (KOSDAQ: 039200.KQ - news) . low of $1.3140.
Traders cited bids in the $1.3440 area.
Italian bond yields on Thursday fell back below the critical 7 percent mark, a level widely deemed unsustainable, as Prime Minister Mario Monti unveiled sweeping reforms to dig the country out of crisis. The spread between French 10-year bond yields and German bunds also eased from record highs.
That helped the euro bounce back above $1.35 after three straight days of decline.
The outlook for the common currency remains bleak, however, and it would likely resume weakness next week should it fail to go beyond $1.36, analysts said.
U.S. data showing initial jobless benefit claims at a seven-month low last week and a strong rebound in future home construction earlier boosted appetite for risk and lifted the euro. [ID:nN1E7AG0BT].
ECB BUYING
European Central Bank buying of Italian and Spanish debt before and after the debt sales helped ease some pressure on yields but looked modest in size, traders said.
Pressure has grown on the ECB to take a greater role in tackling the crisis, with Paris saying it should intervene more forcefully, but Germany and the ECB itself oppose that view.
Seix's Keegan said the ECB is unlikely to succumb to pressure for more aggressive intervention in the fixed income market, much like what the Federal Reserve did in the U.S. bond market under its quantitative easing program.
"That bar for the ECB to come in is so much higher," Keegan said, adding that the bank would need to see a Lehman Brothers (Berlin: GYW.BE - news) -type collapse before it actually steps in.
Against the yen, the euro was down at 103.598 , rebounding from a five-week low of 103.40 set earlier on EBS. The dollar slipped 0.1 percent to 76.979 yen . (Additional reporting by Wanfeng Zhou; Editing by Padraic Cassidy)
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