* Euro rises on cautious optimism over Irish budget
* Support likely to be fleeting, euro zone weaknesses remain
* Expectations for further Fed easing fuel risk appetite
(Adds quote, detail)
By Neal Armstrong
LONDON, Dec 7 (Reuters) - The euro rose on Tuesday on optimism Ireland will pass an austerity budget later in the day, though support was expected to be fleeting, with the single currency still dogged by structural weaknesses in the euro zone.
The dollar slipped against a currency basket after comments from Fed Chairman Ben Bernanke stoked expectations of prolonged U.S. monetary easing measures, supporting appetite for risk.
The euro remained vulnerable after euro zone policymakers failed to come up with new policies to tackle the region's debt crisis. [ID:nLDE6B51VW]
An Irish Times report suggesting the austere Irish budget would be passed on Tuesday triggered cautious investor optimism. [ID:nLDE6B60A6]
"The euro is gaining some support on optimism that the Irish budget will be passed but I expect any rallies to be fleeting. Structural weaknesses in the euro zone remain in place," said Lee Hardman, currency analyst at BTM-UFJ.
"It would be far more significant for the euro if the budget wasn't passed as this would bring down the Irish government and exacerbate concerns about the debt crisis spreading," he said.
The euro EUR= was up around 0.5 percent on the day at $1.3375, after rising to $1.3394, more than 1 percent above Monday's low of $1.3246. Traders said strong demand from a UK clearer and Middle East accounts helped it to rally in European trade.
Take a Look on euro zone debt crisis: [ID:nLDE68T0MG]
Scenarios on euro zone crisis: [ID:nLDE6B50PA]
Graphics package on Europe's struggle with debt:
PDF on yuan offshore market: r.reuters.com/byg28q
The picture was complicated by the dollar's own weakness after Bernanke did not rule out further bond purchases -- a theme that sent the greenback to an 11-month low last month.
Analysts said the fact the Federal Reserve could end up buying more than its initial target of $600 billion in government bonds made investors more positive towards riskier assets and weighed on the dollar.
"The markets now think monetary policy will stay loose in 2011 and there's no reason to think abundant liquidity will die down soon," said Stephen Gallo, head of market analysis at Schneider Foreign Exchange.
"Risk appetite is up and the short U.S. dollar, long commodities trade still looks to have legs," he said.
The dollar was down 0.3 percent versus a currency basket .DXY at 79.324, while European stocks rose more than 1 percent on the day .FTEU3. Commodities were generally firmer, with U.S. crude for January CLc1 rising to a 26-month high above $90 a barrel. Gold hit record highs for the second day in a row. [ID:nLDE6B60GI
The dollar was steady at 82.65 yen, off a three-week low of 82.34. Support was at the bottom of the Ichimoku cloud at around 81.70.
The Australian dollar traded at $0.9957 AUD=D4, close to a three-week high of $0.9966. It dipped slightly after the central bank kept rates on hold at 4.75 percent and said inflation would be little changed over the next few quarters.
The Aussie also quickly recovered from initial losses from talk about Chinese monetary tightening.
The official Chinese Securities Journal reported that China's central bank may raise interest rates this weekend to enshrine its shift to a "prudent" monetary policy in the face of rising inflation. [ID:nTOE6B6003]