* Euro hits fresh 18-month low vs dollar
* Growth concerns from austerity measures under spotlight
* Dollar hits one-year high
By Natsuko Waki
LONDON, May 14 (Reuters) - The euro hit fresh 18-month lows against the dollar on Friday as concerns intensified that fiscal austerity measures in the euro zone would dampen a fragile recovery and spark social unrest.
After rising to around $1.31 following last weekend's agreement of an emergency $1 trillion anti-crisis package, the euro has been under pressure for most of this week as investor focus has shifted to the impact on growth from tightening fiscal policy.
Portuguese leaders agreed tough austerity measures on Thursday, a day after neighbouring Spain announced similar measures involving reductions in civil service pay and job cuts.
They follow crisis-hit Greece where stringent austerity measures risk aggravating recession, leading investors to believe the euro zone's fragile economies will encourage the European Central Bank -- which started buying the region's government bonds in sterilised operations this week -- to keep interest rates low.
"Fundamental worries are that interest rates will remain low for longer because more fiscal austerity measures will mean lower growth going forward," said Marcus Hettinger, global FX strategist at Credit Suisse in Zurich.
"Interest rate differentials moved against the euro as the ECB started buying bonds and markets have priced out interest rate hikes. That's driving the euro lower."
By 1000 GMT, the euro erased early gains and fell as low as $1.2433 <EUR=>, its weakest since November 2008, led by aggressive selling from macro hedge funds.
Traders said large option-related stop-loss orders at $1.2499 and $1.2450 accelerated the currency's slide.
The euro has fallen more than 13 percent against the dollar and yen this year, making it the biggest loser among major currencies.
It lost 1.1 percent on the day to 114.78 yen <EURJPY=>.
The euro held steady however at 1.4005 Swiss francs <EURCHF=>, near Thursday's all-time low, with investors focusing on whether the Swiss National Bank would return to the market to weaken the franc.
Japan's Kokusai Asset Management, the world's second-biggest bond fund after PIMCO, has cut euro exposure in its Global Sovereign fund by 4.8 percentage points since the end of March to 29.6 percent on May 10 as the euro zone's debt crisis intensified.
The fund also cut its exposure to the British pound and the yen, its managers said, but its increased its weightings of U.S. dollar and Canadian dollar bonds. [ID:nTOE64C07N]
The dollar has drawn support from inflows from investors fleeing the euro zone and on the view that economic recovery in the U.S. is on much more solid ground. [ID:nN13233348].
The dollar hit a one-year high against a basket of currencies <.DXY> at 85.873 while it fell 0.4 percent to 92.26 yen <JPY=>.
"I think we are at the point where, whichever way you think the world is going to go - boom or bust - the dollar index will probably head higher," said Adam Carr, senior economist at ICAP.
"It's already had a solid run, but love for the euro is almost non-existent at the moment and the U.S. economy is staging a decent bounce back. I don't know if there is a near- term catalyst to change the euro's fortunes." (Editing by Susan Fenton)