FOREX-US dollar hits 2-month lows; eyes on US bailout

* Dollar slides across board, hits 2-mth low vs euro

* Dollar hits 2-mth low vs basket of currencies .DXY

* Focus on fate of U.S. automakers, Fed rate decision (Adds comment, updates prices, changes byline, changes dateline, previous LONDON)

By Wanfeng Zhou

NEW YORK, Dec 15 (Reuters) - The U.S. dollar fell to two-month lows against the euro and a basket of currencies on Monday, pressured by uncertainty over the fate of U.S. automakers and reduced safe-haven flows.

The dollar was starting to respond negatively to concerns about further weakness in the U.S. economy, analysts said, after a run of weak data caused an exodus from risky positions and increased flight-to-quality buying in the currency.

Investors shunned the greenback amid fears a failure of one or more of the automakers could exacerbate a year-long recession and drag down other companies.

"The uncertain outlook for the U.S. automakers continues to keep investors wary of over exposure to the dollar at this point," said Omer Esiner, senior market analyst at Ruesch International in Washington.

"We're starting to see a shift in the market where negative data is starting to actually impact the dollar negatively, which is contrary to what we've seen for the better part of the last couple of months," he added. "We're seeing a naturally weaker dollar as we get into the year end, so bad news is only exacerbating the need for investors to just exit their long dollar positions."

In early New York trading, the euro was up 1.5 percent at $1.3570 , after climbing as high as $1.3584, the highest level since Oct. 15, according to Reuters data.

The ICE Futures U.S. dollar index, which tracks the value of the greenback against a basket of six currencies, hit a low of 82.517 .DXY., the weakest level since Oct. 20. It last traded down 1.3 percent at 82.606.

A more upbeat tone in the global equities market also helped ease extreme risk aversion, reducing the greenback's safe-haven appeal and boosting demand for higher-yielding currencies.

The Australian dollar rose 1.1 percent and the New Zealand dollar was up 1.5 percent .

Against the yen, the dollar fell 0.9 percent to 90.31 , after hitting a more than 13-year high of 88.10 yen on Friday. But yen gains were capped on speculation that Japanese authorities could intervene to stem further currency strength.

BAILOUT IN FOCUS

The White House said on Friday it was considering tapping a $700 billion financial industry bailout fund to prevent a collapse of ailing U.S. automakers. That came after the U.S. Senate on Thursday rejected a bailout plan to avert a possible bankruptcy by one or more of the nation's three automakers.

But U.S. President George W. Bush said on Monday an announcement on a car industry rescue was not imminent, leaving the industry's fate clouded [ID:nN14461208].

Investors also awaited the outcome of a policy meeting by the Federal Reserve on Tuesday to see how close to zero the U.S. central bank will cut interest rates and what alternative measures it will take to boost the economy. The Fed is widely expected to cut rates by at least 50 basis points from the current 1 percent.

"What the Fed says will likely overshadow its rate move," currency strategists at Brown Brothers Harriman, wrote in a research note. "Many investors are looking for insight into where the Fed anticipates ending the rate cuts and what other non-traditional steps will the Fed adopt." (Additional reporting by Naomi Tajitsu in London; Editing by Chizu Nomiyama)

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