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FOREX-Dollar gives ground as hopes of US stimulus leads traders to riskier currencies

* Chinese yuan rises to year-and-a-half high vs dollar

* Sterling weakens on state-aid Brexit impasse

* Euro up after final manufacturing PMI confirmed

* Graphic: World FX rates in 2020 (Adds comments from ECB)

LONDON, Oct 1 (Reuters) - The dollar fell to a nine-day low on Thursday as robust U.S. data and hopes for U.S. fiscal stimulus left investors confident enough to seek out riskier currencies.

The Chinese yuan gained the most against the dollar, reaching a year-and-a-half high in the offshore market as a holiday in China dried up liquidity, exaggerating the moves. In addition, Chinese data on Wednesday showed its economic recovery was on track.

The Australian dollar and the Norwegian crown also rose versus the dollar.

“There’s been certainly a dent in liquidity,” said Jeremy Stretch, head of G10 FX strategy at CIBS, which usually amplifies market moves. “But what we have seen so far is a generalised risk-on bias on optimism of a stimulus package in the U.S.”

“There’s a bit of a race for Congress to get something in the books before they leave for the recess for the election. If you’ve got airlines talking about laying off more than 30,000 workers, that doesn’t play as a positive narrative going into the election if you’re the incumbent,” Stretch said.

Republican President Donald Trump’s administration has proposed a coronavirus stimulus package to House Democrats worth more than $1.5 trillion, and hopes are rising that both parties will reach a compromise.

At the same time, jobs figures that showed U.S. private employers stepped up hiring more than forecast last month and that Midwest manufacturing grew faster than expected also fed into the optimism.

However, U.S. employers announced another 118,804 job cuts in September, reports showed on Thursday.

The fall in the dollar began the day before, the last day of the month and the third quarter, Derek Halpenny, head of research at MUFG, pointed out.

Short-term traders had expected the dollar to rise. When it didn’t, they were squeezed out of those positions, “resulting in some sizeable moves weaker for the dollar versus certain G10 and EM currencies,” Halpenny said.

According to latest BNP Paribas research, market participants have added a few short positions on the dollar compared with last week.

Along with strong U.S. labour and manufacturing data, the mood pulled the dollar down 0.3% to 93.56 against a basket of currencies, its weakest since Sept. 22.

More U.S. economic data are due later in the day, including initial jobless claims and the manufacturing Purchasing Managers’ Index.

The euro zone manufacturing recovery gathered pace last month, according to the final reading of the manufacturing PMI, which came in at 53.7. But official data showed unemployment across the region rose to 8.1% in August, as expected.

The euro was last trading at $1.1765, up 0.4% on the day and its highest since Sept. 22. The euro also rose after an European Central Bank member said the central bank wasn’t under pressure to ease policy.

Euro/dollar could fall to $1.16 if the U.S. stimulus doesn’t go through, said Tim Graf, FX strategist at State Street.

The Australian dollar rose 0.5% at $0.7204, its highest since Sept. 22. The Norwegian crown gained 0.7% at 9.2605 versus the dollar, a 10-day high.

The Chinese yuan rose 0.7% to 6.7330, its highest since beginning of May 2019.

The British pound rose 0.3% against the U.S. dollar at $1.2957, reversing earlier losses, after a Financial Times report said Britain and the European Union may have reached an agreement on state aid after Brexit. Sterling also rose 0.1% against the euro to trade at 90.78 pence.

Reporting by Olga Cotaga; Additional reporting by Elizabeth Howcroft, editing by Larry King