* ECB's Draghi says will monitor impact of rising euro
* Euro drops sharply versus dollar, yen
* U.S., European shares fall, Irish yields at multi-year lows
By Wanfeng Zhou
Feb 7 (Reuters) - Major stock markets fell on Thursday and the euro hit a near two-week low against the dollar after the European Central Bank's chief said policymakers will monitor the impact of a rising currency and cited downside risks to the bloc's economy.
On Wall Street, shares came under pressure, with traders citing technical factors and the less-upbeat comments on the economy from ECB President Mario Draghi. U.S. stocks have been on an uptrend so far this year, with the S&P 500 up more than 5 percent.
U.S. Treasury prices rose as the retreat in stocks lifted safe-haven demand. Irish government debt rallied, with yields falling to their lowest since early 2007 after Dublin reached a deal that will reduce its borrowing costs.
The ECB left its main interest rate at 0.75 percent. In a post-meeting press conference, Draghi said the exchange rate was not a policy target, but is important for growth and price stability.
He also said risks to the economy were on the downside and that economic weakness in the euro zone will likely prevail in the coming months.
The Dow Jones industrial average dropped 125.52 points, or 0.90 percent, at 13,861.00. The Standard & Poor's 500 Index was down 12.21 points, or 0.81 percent, at 1,499.91. The Nasdaq Composite Index was down 27.46 points, or 0.87 percent, at 3,141.01.
"Whether (Draghi's comments) ignite renewed concerns about the euro debt struggles and Europe in general is yet to be seen, but the market is looking for any reason to take a profit," said Andre Bakhos, director of market analytics at LEK Securities in New York.
"It is just consolidating near multi-year highs, taking a respite, before we advance higher."
Housing and retail stocks were the day's biggest decliners. The housing sector index was off 1.5 percent and the S&P housing index was off 0.9 percent.
Several U.S. retailers reported mixed January sales results, as consumers faced a hit to their take-home pay from higher payroll taxes.
The pan-European FTSEurofirst slipped 0.3 percent to 1,149.29, while MSCI's all-country world equity index was down 0.8 percent at 352.68.
The euro was last at $1.3399, down 0.9 percent on the day , with the session low at $1.3369, the weakest since Jan. 25. Against the yen, the euro fell 1.2 percent to 125.05 yen , with the session low at 124.48 yen.
"Clearly (Draghi) does not want to see the euro go much higher," said Boris Schlossberg, managing director at BK Asset Management in New York. "There is massive pressure from the French. He is signaling displeasure that it ran up so much."
Before Thursday's declines, the euro had risen more than 2 percent against the greenback so far this year and over 10 percent versus the yen.
The benchmark 10-year U.S. Treasury note was up 7/32, the yield at 1.9371 percent.
The October 2020 Irish bond yield fell as low as 3.955 percent, the lowest in an equivalent Irish benchmark bond since early 2007, before the subprime crisis started, according to Reuters data.
Ireland struck a long-awaited deal on Thursday with the ECB to ease the burden of debts it took on to rescue its banking system in a way that will cut its budget deficit and borrowing needs and put it on track to end its reliance on EU-IMF loans this year.
Spanish bond yields also fell after healthy demand at a sale of Spanish debt, though political uncertainty over a corruption scandal forced the country to pay more to borrow.
In commodities trading, Brent crude rose 26 cents to $116.99 a barrel. U.S. crude fell 77 cents to $95.85 a barrel.
Gold fell to a session low of $1,662.80 an ounce immediately after Draghi's comments before recovering to $1,678 an ounce, up slightly on the day.