* "Fiscal cliff" uncertainty dents growth-linked currencies
* Boehner fails to muster Republican support for his bill
* Thin year-end markets may exacerbate currency moves
By Anirban Nag
LONDON, Dec 21 (Reuters) - The dollar rose against growth-linked currencies on Friday after talks to resolve a budget crisis stalled, fuelling concerns the world's largest economy could be tipped into recession.
The dollar, however, lagged the yen, as investors trimmed large short positions against the safe-haven Japanese currency after the Bank of Japan this week increased its asset purchase programme by less than some had expected.
Both the dollar and the yen, the most liquid currencies, are likely to be in demand as long as the outcome of the U.S. budget talks remains uncertain. Gains could be exacerbated in thin market condition before the year end.
Republican lawmakers delivered a blow to their leader, House of Representatives Speaker John Boehner, when they failed to back a bill designed to extract concessions from President Barack Obama in the "fiscal cliff" talks.
That threw into disarray attempts to reach an agreement to avert $600 billion of tax hikes and spending cuts, due to kick in within weeks, and boosted demand for the most liquid government bonds and currencies.
Boehner has scheduled a news conference for 1500 GMT.
The dollar index rose 0.20 percent to 79.405, with near-term resistance at its 200-week moving average of around 79.50. The dollar rose significantly against growth-linked currencies such as the Australian and New Zealand dollars.
"It was sudden and unexpected. People are still hopeful that a deal will be clinched if not by end-December then early January," said Beat Siegenthaler, currency strategist at UBS. "The dollar's rise has been particularly sharp against the Aussie and the kiwi. Its rise has not been across the board."
The dollar was down 0.3 percent at 84.10 yen, well below its recent 20-month high of 84.62 yen. The yen also rose against the euro, with the single currency down 0.6 percent at 111.06 yen.
Concerns over the budget impasse and its impact on U.S. and global growth hurt demand for so-called high-beta currencies and the euro. The euro was last down 0.3 percent at $1.3200.
"We have had a very good run in the euro and what we are seeing at the moment is a little bit of profit-taking triggered by disappointment in the fiscal cliff discussions," said Audrey Childe-Freeman, head of FX strategy at BMO Capital Markets.
"This is a classic risk-off trading environment where the yen did best, followed by the dollar and higher-beta currencies underperformed."
IMPLIED VOLS RISE
The Australian dollar fell 0.6 percent to US$1.0417, its lowest since Dec. 4, while the New Zealand dollar dropped 1.2 percent to US$0.8232.
A drop in U.S. stock index futures in Asian trade as Boehner cancelled a vote on his proposal also helped trigger a sell-off in perceived riskier assets, said Jeffrey Halley, FX trader for Saxo Capital Markets in Singapore.
In the options market, near-term implied volatility rose as uncertainty about the budget talks grew. Demand to hedge against excessive price swings usually rises during times of financial uncertainty.
One-month implied volatility rose to 7.2, from around 6.8 earlier this week. The rise reflected a jump in the volatility index for European stocks as investors sought to hedge against sharp corrections in shares.
Traders also reported demand for dollar/yen implied volatilities. One-month dollar/yen volatility rose above 8 vols from around 7 in the middle of the week.
Traders pared bets against the yen, which has been pressured in recent weeks by expectations that a new Japanese government will push the Bank of Japan into more forceful monetary easing.