* Dollar seen staying weak on Fed stimulus steps
* Euro holds near 4-month high, dollar index near 7-mth low
* Some analysts continue to favour commodity currencies
By Masayuki Kitano and Ian Chua
SINGAPORE/SYDNEY, Sept 17 (Reuters) - The dollar hovered near a seven-month low versus a basket of currencies on Monday, and was seen as likely to stay under pressure after the U.S. Federal Reserve embarked on an aggressive monetary stimulus last week.
The dollar index stood at 78. 802, having fallen as far as 78.601 on Friday, a level unseen since late February. I t has shed some 6 p ercent from a two-year high of 84.100 in July.
The Fed's decision last week to launch a third round of quantitatitive easing to buy $40 billion a month of mortgage-backed securities until the jobs market improved substantially, has whetted investor appetite for risky assets, while weighing on the dollar.
"I don't see any reason why the risk rally won't continue," said Mitul Kotecha, head of global foreign exchange strategy for Credit Agricole in Hong Kong.
One caveat is that investors may eventually turn their focus to worries about the outlook for global economic growth, Kotecha added. "But for now, I think there's no reason to go against this (risk rally) and that means probably more dollar pressure."
The euro held steady at $1.31 28, hovering near a four-month high a round $ 1.3169 hit on Friday on trading platform EBS. I t has ga ined a bout 6 p ercent from a two-year low of $1.2042 plumbed in July.
"The euro looks firm, there is no question about that," said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.
"I think it would be good to sell the euro at some point, but maybe not today," he said, adding that the euro looked firm on technical charts in the wake of its rise above the $1.30 level.
The dramatic bounce in the currency also reflected relief after the European Central Bank recently announced a long-awaited plan to help lower painfully high borrowing costs for stressed members. Markets are now waiting to see if Spain will ask for help to tackle its debt.
Analysts said Madrid appeared to be paving the way for requesting such assistance after it said it would set clear deadlines for structural reforms by month-end.
The dollar has been in retreat since the Fed said on Thursday that it was launching its third round of quantitative easing.
The median forecast among economists polled by Reuters is for the Fed to buy a total of $600 billion of bonds under the new stimulus programme.
"Investors are likely to continue adding bearish dollar positions. In addition, risky assets including commodities and equities will remain well supported," analysts at BNP Paribas wrote in a report.
"With the USD bearish tone gaining momentum, high beta and commodity currencies will be most attractive," the BNP analysts added, referring to relatively volatile currencies and currencies of commodity-producing countries.
One such currency, the Australian dollar, slipped 0. 2 percent to $1.052 6, backing away from a six-month high of $1.0625 set on Friday.
"Overall, the Australian dollar is likely to remain strong but it's hard to see it rising above last year's high of $1.10. A more likely outcome is a range of $0.95 to $1.10," said Shane Oliver, head of investment strategy at AMP Capital.
The U.S. dollar eased 0. 1 percent against the yen to 78.2 7 yen, but remained above a seven-month low of 77.13 yen hit on Thursday after the Fed unveiled its monetary stimulus.
A focal point is how Japanese authorities might respond to the yen's latest rise versus the dollar.
Market jitters about the potential for yen-selling intervention by Japanese authorities helped limit the dollar's drop last week. In addition, analysts say the Bank of Japan may consider easing monetary policy at a two-day policy meeting that ends on Wednesday, if rises in the yen persist.