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FOREX-Dollar broadly weaker as traders await U.S. stimulus breakthrough

* Dollar index hits 7-week low

* Yuan surges after firmer central bank guidance (New throughout, updates prices, market activity, comments to U.S. market open; previous LONDON)

NEW YORK, Oct 21 (Reuters) - The dollar extended its losses against a basket of currencies to hit a seven-week low on Wednesday after U.S. President Donald Trump boosted hopes for a large fiscal stimulus package, prompting some traders to ramp up bets on riskier currencies.

The White House and Democrats in the U.S. Congress moved closer to agreement on a new coronavirus-related relief package on Tuesday as Trump said he was willing to accept a large aid bill despite opposition within his own Republican Party.

With just two weeks until the U.S. presidential election, Trump signaled a willingness to go along with more than $2.2 trillion in new relief, a figure Democrats have been pushing for months.

“We still rather feel that hopes for quick progress on fiscal relief are misplaced - the White House and House Democrats remain apart on key issues and it is clear that a large-scale deal will not get through the Senate this side of the election at least,” Shaun Osborne, chief FX strategist at Scotiabank in Toronto, said in a note.

“Large-scale fiscal relief might only emerge in Q1 in the event of a Democratic sweep. The session ahead is likely to remain dominated by headlines from Washington but wobbly risk appetite should act as a restraint on significant USD weakness,” Osborne said.

The U.S. dollar currency index was 0.4% lower at 92.694, its lowest since Sept. 2.

The greenback slipped to a four-week low against the yen, with the Japanese currency set to log its best one-day gain since Aug. 28.

The riskier New Zealand and Australian dollars both advanced, with the Kiwi up 1.03% and the Aussie up 0.81 versus the greenback.

China’s yuan surged, in both offshore and onshore trading, led by firmer central bank guidance and recent data suggesting a more sustained recovery in the world’s second-largest economy.

Sterling jumped to a six-week high against the U.S. dollar after the European Union’s Brexit negotiator Michel Barnier told EU lawmakers a trade deal with Britain was still possible.

Reporting by Saqib Iqbal Ahmed; Editing by Will Dunham

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