FOREX-Dollar hits fresh lows on Fed stimulus view; yen surges


* Dollar/yen falls, Aussie/yen down more than 1 pct

* Fall in China and Tokyo shares dents risk sentiment

* Aussie down from 4-1/2 mth high set earlier

* Dollar index touches 8-mth low, euro/dlr sets 2-year high

* Weak U.S. jobs data cements view Fed stimulus to stay

By Masayuki Kitano

SINGAPORE, Oct 23 (Reuters) - The dollar set an eight-monthlow versus a basket of currencies on Wednesday after weak data cemented expectations for the Federal Reserve to keepits stimulus in place until next year, while the yen surged asrisk sentiment took a hit.

The dollar touched a fresh two-year low versus the euro inthe wake of the disappointing jobs data, and extended its lossesversus the yen in the Asian afternoon as a drop in regionalshares dented risk sentiment. Chinese equities fell 1.2percent.

The dollar fell to as low as 79.137 against a basketof currencies, nearing this year's trough of 78.918 set in earlyFebruary.

The greenback came under pressure after data the previousday showed U.S. employers added far fewer workers than expectedin September, suggesting the economy may have lost some momentumeven before the 16-day partial shutdown of the federalgovernment this month.

"It's becoming difficult for the Federal Reserve to reduceits stimulus this year," said Shinichiro Kadota, currencystrategist at Barclays.

The euro rose to as high as $1.3793 on trading platform EBS,just slightly exceeding Tuesday's peak to reach its highestlevel since November 2011. The euro last fetched $1.3773, down0.1 percent on the day.

A majority of U.S. primary dealers polled by Reuters nowbelieve the Federal Reserve will not start cutting its current$85 billion a month bond buying until March.

"I think there's certainly a high possibility that dollarweakness might extend a bit further, but I'm not really surethat it changes the medium-term dollar picture," said Sim MohSiong, FX strategist for Bank of Singapore.

In the near-term, the dollar could see further weaknessagainst other major currencies such as the euro and sterling,Sim said, adding that the euro may rise towards levels around$1.39.

One near-term focal point is the Fed's Oct. 29-30 policymeeting, which could provide clarity on whether there has beenany substantial change to Fed policymakers' views on theeconomy, Sim added.

The dollar fell 0.8 percent against the yen to 97.34 yen. The dollar is now testing support at its 200-day movingaverage, now at about 97.27 yen.

The yen rose broadly, with the euro falling 0.9 percent to134.09 yen, down from Tuesday's four-year high of135.52 yen.

The Australian dollar slid 1.3 percent to 93.96 yen, down from a four-month high of 95.67 yen set onTuesday.

Earlier on Wednesday, the Australian dollar had scaled a4-1/2 month high against the U.S. dollar after ahigher-than-expected domestic inflation reading reduced thechances of further interest rate cuts from Australia's centralbank.

The Aussie rose to as high as $0.9758, its highest levelsince early June. The Aussie, however, later reversed course andturned negative, and was last down 0.6 percent on the day at$0.9654.

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