* Euro weakens again as traders eye policy shifts

* Sterling below recent trendline, says analyst

(Recasts with further dollar gains; changes byline, dateline, previous LONDON)

By Michael Connor

NEW YORK, May 28 (Reuters) - The dollar on Wednesday rose on softness among other major currencies such as the euro, which fell below $1.36 amid gathering expectations of a monetary policy shift next week by the European Central Bank.

The U.S. dollar index .DXY hit a new eight-week peak of 80.537, reflecting a 0.25 percent decline for the trading day in the euro EUR= against the U.S. currency. The measure of a basket of currencies was last at 80.522 in New York trade, up 0.21 percent.

The yen .JPY= was down 0.24 percent against the dollar, and the British pound was off 0.6 percent to $1.6707.

"The dollar is doing pretty good today," said Greg Michaloswki, the chief currency analyst at FXDD.

The euro, which had threatened to pierce a $1.40 in recent weeks, was again stung on Wednesday by banks selling the currency ahead of the central bank's policy meeting.

Traders speculate the scale of action it takes to bolster the economy - and reduce euro zone interest rates - may yet disappoint markets.

But comments this week by ECB President Mario Draghi

ID:nL6N0OD4AG were read as confirming the bank is on course to ease policy significantly. Many banks now expect cuts in more than one of its main rates as well as targeted steps to force more credit into the economy.

The euro dropped as low as $1.3596 after New York trading began. That's a level not seen since mid February. The shared currency later hovered around $1.3602.

"The market likes the dollar at the moment even though Treasury yields are lower. If they start to rally, as I think they will, then the dollar may take off," said Graham Davidson, a currency dealer with NAB in London.

The dollar rose another 0.55 percent against sterling to $1.6720. The pound has been hit over the past couple of days by a combination of slightly weaker economic data and hints of growing political threats to Britain's long-term status quo.

On Wednesday, the Confederation of British Industry reported retail sales growth only half of forecasts. ID:nL9N0MN00W

"The CBI data this morning, as with some of the other recent numbers, were okay but they haven't been blockbusters either, plus we had one building society hinting that house prices in London might be ready to correct." ID:nL6N0OE1IQ

Michaloswki said sterling on Wednesday had sunk below a key technical support and was vulnerable to further declines.

"It broke through the 1.6770 level on the daily chart, and I pay attention to that," he said.

(Reporting By Michael Connor in New York; Editing by Chizu Nomiyama)

((michael.connor@thomsonreuters.com)(646 223 6309)(Reuters Messaging: michael.connor.reuters.com@reuters.net)) 

 ((         Currency bid prices at 10:12AM (1412 GMT) Description    RIC    Last    U.S. Close  Previous   Session    Pct Change    YTD Pct  Change    High Bid    Low Bid Euro/Dollar    EUR=    $1.3597    $1.3632    -0.26%    -1.08%    +1.3637    +1.3596 Dollar/Yen    JPY=    101.7500    101.9700    -0.22%    -3.23%    +102.0300    +101.6500 Euro/Yen    EURJPY=    138.35    139.01    -0.47%    -4.67%    +139.1100    +138.3300 Dollar/Swiss    CHF=    0.8981    0.8967    +0.16%    +0.59%    +0.8990    +0.8965 Sterling/Dollar    GBP=    1.6708    1.6809    -0.60%    +0.92%    +1.6815    +1.6709 Dollar/Canadian    CAD=    1.0858    1.0853    +0.05%    +2.24%    +1.0866    +1.0842 Australian/Dollar    AUD=    0.9223    0.9257    -0.37%    +3.48%    +0.9270    +0.9222 Euro/Swiss    EURCHF=    1.2212    1.2224    -0.10%    -0.48%    +1.2234    +1.2214 Euro/Sterling    EURGBP=     0.8136    0.8109    +0.33%    -1.94%    +0.8140    +0.8102 NZ Dollar/Dolar    NZD=    0.8479    0.8562    -0.97%    +3.33%    +0.8571    +0.8481 Dollar/Norway    NOK=    5.9592    5.9512    +0.13%    -1.77%    +5.9640    +5.9409 Euro/Norway    EURNOK=    8.1047    8.1160    -0.14%    -2.81%    +8.1287    +8.0889 Dollar/Sweden    SEK=    6.6410    6.6235    -0.01%    +3.40%    +6.6461    +6.6155 Euro/Sweden    EURSEK=    9.0300    9.0308    -0.01%    +1.85%    +9.0423    +9.0200           All spots FX=  Tokyo spots AFX=  Europe spots EFX=  Volatilities FXVOL=  Tokyo Forex market info from BOJ TKYFX World central bank news CEN Economic Forecasts... ECON   Official rates...INT/RATE Forex Diary.......MI/DIARY   Top events........M/DIARY Diaries...........DIARY Diaries Index........IND/DIARY Press Digests.....PRESS Polls on G7 economies..SURVEY/ European markets......MARKETS/))))

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