* Fed debate on scaling back QE lifts U.S. dollar
* Euro hit by weak euro zone PMI data
* Euro tries to defend 50 pct retracement of Nov-Feb rally
* Yen likely to post first substantial weekly gain in 3 months
* Pound under pressure on BoE expectations
By Hideyuki Sano
TOKYO, Feb 22 (Reuters) - The dollar bustled near a 5-1/2-month high against a basket of currencies on Friday, on doubts over just how long the U.S. Federal Reserve will keep its quantitative easing in place.
The dollar's gains came as the euro tumbled to a six-week low against the dollar and a three-week trough against the yen, on disappointing euro zone economic data and uncertainty ahead of Italy's election at the weekend.
The dollar index, which measures its value against a basket of six major currencies, rose past its Nov 16 peak to 81.508 on Thursday, its highest level since Sept. 5. It last stood at 81.356 in early Asian trade.
Minutes of the Federal Reserve's last meeting released on Wednesday and comments from the bank's two top officials on Thursday showed growing debate within the bank about scaling back its bond buying programme.
Concerns that the Fed may stop providing a flood of cash to banks boosted the dollar, at expense of many other assets, ranging from the euro and other risk currencies to stocks and commodities.
The euro fell to a six-week low of $1.31615 on Thursday and last stood at $1.3190, flat from late U.S. levels.
Business activity indexes dealt a blow to hopes that the euro zone might emerge from recession soon, showing the downturn across the region's businesses unexpectedly worsened this month.
The data raised nervousness ahead of an influential German Ifo business sentiment index due at 0900 GMT.
"After the euro's fall yesterday, we should be wary of risk that weak Ifo figures cement concerns on the euro zone economy. Given that the euro had been outperforming since late last year, its correction could be large," said Junya Tanase, chief FX strategist at JPMorgan Chase Bank.
In addition, concerns that a fragmented parliament after Italy's national election could trigger a sell-off in the peripheral euro zone bond market also weighed on the euro.
The currency is now trying to cling to an important chart point of $1.3186, a 50 percent retracement of its 10.5-cent rally from November to February.
Below that is another major support from its 90-day moving average, at $1.3135, though a break there will leave it open for a test of the Jan. 10 low of around $1.3040.
Against the yen, the euro fell to 122.25 yen, its weakest level since late January. It traded at 123.05 yen in early Asian trade, up slightly from late U.S. levels.
NO FOREIGN BOND BUYING
While the dollar gained across the board, the dollar failed to advance against the yen with the Japanese currency's three-month-old decline on monetary easing expectations is showing signs of losing momentum.
The dollar stood flat in early Asian trade to fetch 93.26 yen, keeping some distance from its 33-month high of 94.47 hit last week.
"Judging from recent comments, most Japanese ministers don't really wish to push the dollar/yen up beyond 95 yen. I suspect if the yen weakens further, (Finance Minister Taro) Aso will try to rein in the yen's fall," said Minori Uchida, chief strategist at the Bank of Tokyo-Mitsubishi UFJ.
The yen looks set to post its first substantial weekly gain since mid-November, when the announcement of a Japanese election spurred investors to bet more political pressure would be put on the Bank of Japan to take bold easing steps.
Speculators turned their gaze to British pound which has fallen 1.7 percent so far this week, hitting a 2 1/2-year low of $1.5130 on Thursday, on expectations of more quantitative easing by the Bank of England.
Sterling has recovered a little to last trade at $1.5254 but it is still seen as vulnerable.
The Canadian dollar flirted with a seven-month low versus the U.S. unit hit on Thursday, trading at C$1.0186 per U.S dollar, near Thursday's low of C$1.0208.
The Australian dollar hit a four-month low of $1.0221 on Thursday but recovered a bit in early Friday trade after Reserve Bank of Australia chief Glenn Stevens did not include any fresh signs of a rate cut in testimony to the Australian parliament's economics committee.
It last fetched $1.0295, up 0.5 percent from late U.S. levels.