* Dollar jumps as U.S. presidential race neck-and-neck
* Mexican peso, Chinese yuan hit hardest on trade war worries
* Trump projected to win Florida, Ohio; Rust Belt in focus
* Implied volatilities ease despite prospect of delay in poll outcome
TOKYO, Nov 4 (Reuters) - The U.S. dollar jumped and risk-sensitive currencies weakened on Wednesday, as early results in the U.S. presidential election showed a very tight race, prompting a wind-back of bets on a victory by Democratic challenger Joe Biden.
President Donald Trump was leading in key battleground states including Florida and Ohio, while investors looked to whether he can retain Rust Belt states -- Michigan, Wisconsin and Pennsylvania -- that sent Trump to the White House in 2016.
“This is clearly not a “blue wave” some people have been talking about,” said Shinichiro Kadota, senior currency strategist at Barclays, referring to a scenario where Democrats will handily win the White House as well as the control of both chambers of Congress.
(For multimedia U.S. election coverage, click: here )
The rising likelihood of Trump’s re-election hurts the currencies that have been hit hardest by Trump’s trade policies, such as the Mexican peso and the Chinese yuan.
The Mexican peso fell almost 4% at one point and last traded at 21.435 per dollar, down about 1.7% while the offshore Chinese yuan fell 0.4% to 6.7362 to the dollar, hitting a one-month low.
Among major currencies, the euro fell as much as 1% to a low not seen since late July and last stood at $1.1665, down 0.45% on day.
The Australian dollar lost 0.6% to $0.7120 while the British pound dropped 0.5% to $1.2983. The Canadian dollar fell 0.7% to C$1.3225 per U.S. unit. All of them sank more than one percent at one point.
“I think the odds of a clean sweep are diminishing, almost by the minute. That reduces the possibility, or the likelihood at least of a large stimulus programme being agreed to in the first days of a Biden administration,” said Matt Sherwood, head of investment strategy at Perpetual in Sydney.
The Japanese yen also gave up 0.35% to 104.87 per dollar .
The dollar index measuring the greenback against a basket of currencies gained 0.3% to 93.82.
Investors were increasingly braced for the possibility that the election results may not become clear on Wednesday, with markets hedging against the risk of a contested election or a potentially drawn out process as mail in ballots were counted.
“I don’t think markets at this point are pricing in a victory of Trump or Biden. We just have to wait for the results,” said Kyosuke Suzuki, director of forex at Societe Generale in Tokyo.
“A contested election probably takes all of the SPX, bond yields and the USD (at least versus majors) down meaningfully,” said Alan Ruskin, chief international strategist at Deutsche Bank in New York.
Still, implied volatilities on most major currency pairs have been relatively stable, suggesting investors expect markets to be able to take a protracted period of vote counting in their stride.
One-month eudo/dollar volatility dropped to 7.90% from 8.29% on Tuesday while the dollar/yen volatility dropped to 7.20% from 7.75%.
Reporting by Hideyuki Sano and Eimi Yamamitsu, Additional reporting by Tom Westbrook in Singapore; Editing by Kim Coghill and Jacqueline Wong
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