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FOREX-Dollar steadies after falling on sharper risk appetite

* Yuan, Aussie, Yen, rise vs US dollar

* Pound still close to $1.30 on Brexit hopes

* Graphic: World FX rates in 2020 tmsnrt.rs/2RBWI5E (Updates prices, adds comment)

LONDON, Oct 6 (Reuters) - The dollar stabilised on Tuesday after weakening against most currencies in earlier trade, as rising optimism that U.S. lawmakers could agree on new stimulus to blunt the economic impact of the coronavirus dampened demand for safer assets.

Risk appetite also improved after U.S. President Donald Trump left hospital and returned to the White House following treatment for COVID-19, a development viewed as reducing political uncertainties in the near term.

The lead taken by Trump’s presidential opponent Joe Biden in polls ahead of next month’s election is also seen as negative for the U.S. currency.

“The increasing possibility of a “blue wave” (Democrat control of the White House and Congress) that would open the door for much-needed fiscal stimulus would be a welcome development for risk assets and could undermine the U.S. dollar,” said Lee Hardman, currency analyst at MUFG.

An index which measures the dollar against a basket of currencies was last flat at 93.49. It has fallen around 1% from a two-month high reached at the end of September, in contrast with U.S. equity markets, which rose.

Euro/dollar was also flat at 1.1779. The British pound fell 0.1%, to $1.2967, though hopes of a Brexit deal kept the currency close to $1.30. The dollar was 0.2% weaker versus the Japanese yen at 105.56.

U.S. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin spoke by phone for about an hour on Monday on coronavirus economic relief and were preparing to talk again on Tuesday, continuing their recent flurry of activity working towards a deal on legislation.

White House Chief of Staff Mark Meadows said there was still potential for an agreement among lawmakers in Washington on more economic relief, and that Trump was committed to getting the deal done.

However, renewed efforts in Congress to reach an agreement on relief funds for the pandemic-hit economy have been complicated by the spread of the coronavirus among key policymakers including Trump.

The president returned to the White House on Monday after a three-night hospital stay for COVID-19 treatment, though the White House physician warned he may not be out of the woods yet.

Deutsche Bank currency analyst George Saravelos said the fiscal stimulus needed in the United States to fight the coronavirus-induced economic downturn will be negative for the U.S. dollar because the Federal Reserve is planning to remain accommodative.

“Is more U.S. fiscal stimulus good or bad for the dollar? It helps growth, of course. But the Fed is more important,” he said.

“It is clear that the Fed’s new average inflation-targeting strategy is explicitly designed to keep the curve very flat and push front-end real yields as low as possible. That’s why post-COVID fiscal stimulus is going to be much more dollar-negative than the Trump one,” Saravelos added.

Among currencies that are not included in the dollar index, the offshore Chinese yuan weakened 0.1% to 6.7280 per dollar , having hit on Monday its highest since April last year.

The Australian dollar reversed the gains it made after the Reserve Bank of Australia kept interest rates on hold at 0.25%, despite widespread expectations of a rate cut. It was last trading at 0.7150, down 0.4% on the day.

Australia will spend A$4 billion over the next year to pay businesses that hire those under the age of 35, Treasurer Josh Frydenberg said on Tuesday, part of an ambitious plan to boost jobs and growth. (Reporting by Olga Cotaga; Editing by Susan Fenton and Jan Harvey)

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