The euro rose against the dollar on Monday after Dubai's announcement it had received help from Abu Dhabi to repay its debts warmed risk appetite.

The dollar weakened broadly on news that Abu Dhabi would bail out its debt-laden neighbour with $10 billion in aid, which initially triggered selling in the yen as it eased worries about a possible debt default by Dubai.

Analysts said the euro benefited from the bailout announcement, but said further significant gains may be capped as traders were unlikely to put on big positions as market liquidity decreases in the run-up to the year-end holidays.

The Abu Dhabi news helped risk sentiment, boosting the euro. The yen suffered from a squeeze (in long yen positions), said Kasper Kirkegaard, currency strategist at Danske Markets in Copenhagen.

But we should be careful, the markets are thinning out so we could see some volatile moves.

By 0855 GMT, the euro EUR= had risen 0.2 percent to $1.4656, having climbed to around $1.4685 after Dubai said it had received $10 billion from Abu Dhabi to help it repay $4.1 billion in an Islamic bond maturing on Monday. [ID:nGEE5AO2FN]

Late last week, the euro hit a two-month low of $1.4586 on the EBS trading platform on the back of strong U.S. retail sales and consumer sentiment figures.

The single European currency was also helped by a 0.8 percent rise in European shares .FTEU3.

Euro/dollar gains helped to push the dollar index down 0.2 percent to 76.391, pulling it away from a near six-week high of 76.726 hit late last week.

The euro initially rose against the yen, rallying close to the day's high around 130.60 yen, before reversing those gains. It was last at 129.64, down nearly half a percent on the day.

FED IN FOCUS

Dollar losses were widespread, with the U.S. currency sliding JPY= 0.4 percent to 88.73 yen. The dollar was unable to sustain a jump to around 89 yen after Dubai's announcement, with traders citing Japanese exporters selling the greenback after its rise.

Last month, news that government-controlled holding company Dubai World might default rattled financial markets and led to a sell-off in the euro and riskier assets including the high-yielding Australian dollar.

Markets awaited figures on euro zone employment and industrial production due at 1000 GMT, although analysts said the data was unlikely to have a significant impact.

Traders looked ahead to a two-day Federal Reserve policy meeting, which begins on Tuesday.

The U.S. central bank is likely to keep rates unchanged near zero, but the focus will be on the accompanying statement and whether the Fed reiterates a dovish bias and does not fully acknowledge the recent run of strong data.

The surprisingly strong reading of U.S. consumer data on Friday, coming on the heels of a lower-than-expected fall in non-farm payrolls earlier this month, had boosted the dollar,

Such signs of a recovery in the U.S. economy have raised some speculation in the market that the Fed may wind down loose monetary policy sooner than markets had been expecting.

U.S. Dubai