* 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
(Recasts, updates prices, adds comment, changes byline)
NEW YORK (Frankfurt: A0DKRK - news) , Nov 17 (Reuters) - The safe-haven dollar rose for a fourth straight session on Thursday in a risk-averse market that saw stocks and commodities sell off on concerns euro zone banking and fiscal problems could spread to healthier economies.
Commodity (Euronext: COMIN.NX - news) currencies such as the Australian, Canadian, and New Zealand dollars as well as emerging market units posted sharp losses as investors grew frustrated the two-year old debt crisis is far from being resolved.
"I think this euro zone crisis could worsen before it gets better," said James Keegan, chief executive officer and chief investment officer at Seix Investment Advisors, in Upper Saddle River, New Jersey.
Keegan, who oversees assets of about $26 billion, pointed out that the threat of contagion is real and it is "questionable whether the euro zone as an entity would survive."
Bond yields in some of the debt-ridden euro zone countries such as Italy dropped from extreme levels, which suggested easing investor anxiety about the region's debt crisis. That initially underpinned the euro, but the support faded on more negative headlines on 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 mid-afternoon, the dollar index, a gauge of its value against six currencies, rose 0.3 percent to 78.269 .
The euro was up slightly at $1.34748, 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 fell back below the critical 7 percent, 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 claims at a seven-month low last week and a strong rebound in future home construction also boosted appetite for risk and lifted the euro. For a wrapup in U.S. economic data, click on [ID:nN1E7AG0BT].
ECB BUYING
The European Central Bank buying of Italian and Spanish debt markets 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.
Ronald Simpson, director of currency research at Action Economics in Tampa Florida said it's key for the ECB to at least continue what it's been doing until the European Financial Stability Facility (EFSF) is finalized and in operation.
"Right now if the ECB pulled away completely from its bond buying activity, we probably would see yields go through the roof. They've been basically the only buyers."
Seix's Keegan does not think the ECB would aggressively intervene 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-type event before it actually steps in.
Against the yen, the euro was flat at 103.663 , rebounding from a five-week low of 103.40 set earlier on EBS. The dollar slipped 0.1 percent at 76.940 yen .
(Additional reporting by Wanfeng Zhou; Editing by Andrew Hay)
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