NEW YORK (MarketWatch) — The U.S. dollar rose versus major rivals Friday, with the euro hit hard amid worries that Europe’s sovereign debt crisis was spreading.

The euro EURUSD, +0.17% traded at $1.3222 against the dollar, down from $1.3339 in London trade late Thursday. The European single currency hit a two-month low at $1.3199 in earlier action, according to FactSet Research data. See real-time currency quotes and tools.

The Portuguese government and the European Commission on Friday denied a report in the Financial Times Deutschland newspaper that the European Central Bank and a majority of euro-zone countries were pressing Lisbon to apply for a bailout in an effort to prevent the debt crisis from forcing Spain out of the credit markets.

The denials had little impact, however, with yields on Spanish, Portuguese and Irish government debt continuing their recent rise, pushing the yield premium demanded by investors to hold 10-year Spanish debt over German bunds to a euro-era high at more than 2.6 percentage points. Read about Europe’s sovereign-debt crisis

The dollar index DXY, -0.10% , a measure of the U.S. unit against a basket of major rivals, traded at 80.378, up from 79.740 late Thursday.

U.S. markets were closed Thursday for the Thanksgiving holiday.

The greenback rose against the Japanese currency USDYEN, buying ¥84.02, up from ¥83.54 late Thursday.

The British pound GBPUSD, -0.32% changed hands at $1.5609, down from $1.5758.

“The price action shows that investors continued to seek safety in the U.S. dollar, driving it higher against all of the major currencies,” wrote Kathy Lien, director of currency research at Global Forex Trading, in a note Friday morning.

European woes

As expected, Portugal’s parliament on Friday approved the government’s proposed 2011 budget plan, which adds to recent austerity measures in an effort to cut the deficit from 9.3% of gross domestic product in 2009 to less than 3% in 2014.

Banks were under pressure after a report in the Irish Times said officials from the EU and IMF were examining how senior bondholders could be made to pay some of the cost of restructuring Ireland’s banks.

“Obviously that’s rattled the nerves of bank holders across Europe,” said Simon Derrick, chief currency strategist at Bank of New York Mellon.

Meanwhile, traders will be paying close attention to weekend headlines for the possibility of a move toward a Portuguese bailout, Derrick said, but noted that a rescue wouldn’t guarantee a bounce for the euro.

Even the Greek rescue in April was followed by a further rout, with the euro sliding to a four-year low below $1.19 before stabilizing after European governments agreed to a €750 billion ($994 billion) bailout facility with the International Monetary Fund.

A slide on a similar scale from the euro’s level near $1.38 ahead of the Irish bailout would see the single currency dip toward the upper- to mid-$1.20s, Derrick said.

Federalism needed to save euro

Korean worries

The dollar was also boosted by safe-haven flows after news reports said artillery blasts were heard near the South Korean island of Yeonpyeong, three days after shelling by North Korea killed four there.

North Korea apparently was carrying out a military drill, and had fired up to 20 rounds, said reports citing South Korea’s YTN television network. The South Korean defense ministry said it was investigating the nature of the explosions, according to The Wall Street Journal.

Pyongyang also stepped up its rhetoric condemning U.S.-South Korea joint military exercises.

“The dollar and Swiss franc made gains as concerns about European peripheral countries persisted and as further comments from North Korea fanned fears of escalation on the Korean Peninsula,” said currency strategists at Brown Brothers Harriman.