* Euro struggles near $1.18 mark
* Dollar rise leaves Yen at weakest since January
* Emerging market currencies suffer more falls
* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh (Adds quote, updates figures)
By Tom Finn
LONDON, May 18 (Reuters) - The euro was headed on Friday for its fifth successive weekly decline versus the dollar, in what would be a first for the currency since 2015, as political uncertainty in Italy worried investors.
The euro has slumped six cents from more than $1.24 in the space of three weeks after a huge dollar rally and amid concerns about the demands of populist parties likely to form Italy's next government.
The far-right League and 5-Star Movement have agreed on a governing accord that would slash taxes and ramp up welfare spending.
Ratings agency DBRS warned on Thursday that the economic proposals of the anti-establishment parties could threaten Italy's sovereign credit rating.
The euro on Friday hovered near a five-month low of $1.1763. It has declined nearly 1.2 percent versus the dollar this week and fallen sharply against the Swiss franc, which typically attracts capital in times of uncertainty.
"The possibility of a eurosceptic government in Rome is shaking investor confidence ... at this point a larger fiscal deficit and greater bond issuance [in Italy] does seem likely," said David Madden, a strategist at CMC Markets.
A founding member of the EU and the euro, Italy accounts for 15.4 percent of Eurozone GDP and the parties' hostility toward the European Union stance is the biggest challenge to the bloc since Britain voted to leave two years ago.
Still, some investors have played down the broader impact on the euro and questioned whether the Italian parties will really follow through on such plans.
Only five percent of Italian government bonds are held by non-EU residents, making the chances of a massive flight of capital unlikely.
A powerful rally by the dollar is also hurting the euro.
On Friday the greenback edged higher against the yen and set a fresh four-month high, buoyed by a further rise in U.S. Treasury yields that suggests an upbeat outlook for the world's largest economy.
The dollar's index against a basket of six major currencies stood at 93.570 and briefly surpassed a five-month high of 93.632 set earlier this week.
The dollar has risen 5 percent since mid-February and investors are betting that U.S. interest rates will need to rise further to curb inflation.
That has forced investors who took big positions against the dollar anticipating it would fall in 2018 to rush to unwind and cover their positions, pushing the greenback even higher.
"We continue to anticipate dollar gains," Hans Redeker, global head of currency strategy at Morgan Stanley in London, said in a note.
"Global growth divergence is continuing, with US retail sales and industrial production contrasting with growth weakness in Europe and Japan," he said.
In a note to clients, strategists at Citibank also said the dollar rally would not last long.
The U.S. budget deficit, which is projected to balloon to more than $1 trillion in 2019, they said, would contribute to a drop of 5 percent in the dollar index over the next 12 months. (Editing by Richard Balmforth)