FOREX-U.S. dollar rallies broadly on GSE takeover

* Dollar index trades at one-year highs

* Takeover seen bolstering U.S. financial system

* Yen, Swiss franc slide broadly on renewed risk appetite (Adds comments, updates prices, changes byline)

By Vivianne Rodrigues

NEW YORK, Sept 8 (Reuters) - The U.S. dollar rallied to a one-year peak against a basket of currencies on Monday, as the government's takeover of the country's two biggest mortgage finance agencies boosted confidence in the U.S. financial sector.

The bailout of the beleaguered Freddie Mac (FRE.N) and Fannie Mae (FNM.N), which own or guarantee half of the United States' $12 trillion in outstanding home mortgage debt, also prompted investors to wade back into risky trades, by buying higher-yielding currencies and selling the yen.

Overall, analysts viewed the U.S. Treasury move as a positive step in staving off wider financial and housing market weakness.

"The bailout package is going to help bring money and liquidity back to the U.S. financial system," said Greg Salvaggio, a vice president for trading at Tempus Consulting in Washington, D.C. "Today's rally in the dollar is not so much the result of a bet in U.S. economic fundamentals, but instead a bet liquidity and trading volumes will get back to normal."

In late afternoon trading, the U.S. dollar index on the ICE Futures Exchange, which measures the value of the dollar against a basket of six currencies, traded at one-year highs, up 1.3 percent on the day at 79.559 .DXY, according to Reuters data.

The euro fell to as low as $1.4055 EUR=, the lowest in about 11 months. It last traded at $1.4104, down 1.1 percent.

The dollar initially fell in the aftermath of the weekend action as investors took the government's takeover of the stricken government-sponsored enterprises (GSEs) as an excuse to buy riskier assets, sending stock markets soaring and the low-yielding Japanese yen sharply lower.

The greenback last traded up 0.2 percent at 107.94 yen JPY=. The euro was also down against the yen at 152.32 EURJPY=.

"On balance, the takeover of Fannie and Freddie is a net positive for the U.S. dollar because it shores up confidence in the U.S. financial sector," said Omer Esiner, a senior market analyst, at Ruesch International on Washington.

"Having said that, I don't think the government action represents a silver bullet for all the problems facing the housing market and the economy. There are still so many questions about this bailout."

BUDGET IMPLICATIONS OF BAILOUT

But while the news did much to alleviate concern about systemic financial market risks, it did little to change fundamentals that had started to drive the dollar higher prior to the weekend -- slowing growth in the euro zone and the UK.