FOREX-Dollar clambers off 2-1/2 year low, risk currencies take breather

* Dollar recovers from lowest in more than two years

* Euro hits fresh 2020 high

* Sterling falls on negative Brexit headline

* Graphic: World FX rates in 2020

LONDON, Dec 2 (Reuters) - The dollar clambered off a two-and-a-half-year low on Wednesday as investors assessed the likelihood of further fiscal stimulus in the United States, while a rally in riskier currencies lost steam.

By midday in London, the index that measures the greenback against a basket of major currencies was 0.2% higher at 91.42 , off the lowest level since late April 2018 it hit overnight.

U.S. Treasury Secretary Steve Mnuchin and House of Representatives Speaker Nancy Pelosi held stimulus talks for the first time since the Nov. 3 election. A bipartisan group of senators and House members proposed $908 billion worth of coronavirus relief measures.

Expectations of further stimulus and progress on COVID-19 vaccines in recent weeks have pressured the dollar as investors bid risk assets higher. That move took a pause on Wednesday.

Later in the day, U.S. ADP national employment data is due.

“We have ADP employment data as the only standout in the US calendar today, which should provide some direction for market expectations ahead of Friday’s payrolls,” FX strategists at ING said in a note to clients.

“Still, data is clearly playing second fiddle to vaccine and stimulus news. Markets may retain an upbeat stance on the latter for now as bipartisan talks resume, providing further support to risk assets and reinforcing the bearish dollar argument.”

In early trading in London, the euro set a 2020 high of $1.2088 against the dollar, its highest since April 2018. It last traded 0.2% lower at $1.2047.

The European Central Bank meets next week, and analysts say the euro could be pressured as investors worry the ECB will act to curb its rapid rise.

Jordan Rochester, FX strategist at Nomura, said the euro may struggle against the dollar for two reasons: speculative positioning profit-taking and the possibility the ECB will cut interest rates next week. He added that both were not too much of a concern in the medium-term.

“We still expect further gains as medium-term flow factors do seem to point towards continued EUR/USD strength in the new year and with it we expect $1.25 to $1.30 in the years to come,” he said in a note to clients.

Against the Japanese yen, the dollar rose 0.3% to 104.55 .

The Bank of Japan’s deputy governor signalled the central bank was ready to extend pandemic-response programmes, saying it would “take additional easing steps without hesitation as needed”.

The British pound fell after news headlines saying the United Kingdom’s post-Brexit trade deal with the European Union “still hangs in balance”.

The EU’s Brexit negotiator told the 27 national envoys on Wednesday that differences in UK trade talks persisted, according to a senior EU diplomat who was present at the closed-door briefing.

The pound last traded over half a percent lower to the dollar at $1.3348.

The risk-sensitive Aussie traded flat following a brief bounce in Asian hours as data showed Australia’s economy rebounded more than expected in the third quarter.

The New Zealand dollar traded at $0.7046, down 0.2% on the day, off two-and-a-half-year highs..

The onshore yuan last changed hands at 6.5555 per dollar , up 0.1% on the day.

It briefly erased some gains after the New York Times reported that U.S. President-elect Joe Biden will not immediately act to remove the Phase 1 trade agreement President Donald Trump signed with China. (Reporting by Ritvik Carvalho; additional reporting by Eimi Yamamitsu in Tokyo; editing by Larry King and Emelia Sithole-Matarise)