* Expectations of stimulus, inflation under Trump boost dollar
* Dollar/yen on track to gain 3.6 pct on the week
* Mexican peso still stuck near record lows
By Shinichi Saoshiro
TOKYO, Nov 11 (Reuters) - The dollar hovered at a 3-1/2-month high versus the yen early on Friday, extending big overnight gains as the markets prepared for a Donald Trump presidency that could stimulate the U.S. economy fiscally and lift interest rates.
The U.S. currency was steady at 106.860 yen JPY= after surging to 106.950 yen overnight, its highest since July 21.
The greenback was set to end the week on a 3.6 percent gain against its Japanese peer, which was initially expected to emerge on the winning end due to its perceived safe-haven status upon a Trump victory in the U.S. presidential elections.
The dollar did slump briefly towards 101 yen on Wednesday when the Republican candidate, initially feared by the markets as an unknown entity, edged out Democrat Hillary Clinton.
But the currency has rallied hard since, along with an ebb in broader risk aversion accompanied by a surge in U.S. yields.
Expectations that Trump's policies would boost spending and inflation helped U.S. long-dated Treasury yields rise to their highest in more than 10 months. US/
"Should the U.S. reflation trade gain traction and longer dated U.S. Treasury yields move higher in an orderly manner (potentially accompanied by tighter Fed policy), this is likely to send dollar/yen higher," wrote currency strategist at ING.
Still, they cautioned against complacency.
"In contrast, should the main theme of the Trump presidency turn into protectionism, the safe haven yen is likely to rally, with dollar/yen moving well below the 100 level."
Reflecting such concerns, the Mexican peso MXN= MXN=D2 was stuck at 20.50 pesos to the dollar, in close proximity of a record low seen on Wednesday.
The dollar, in the meantime, stood tall against its other peers. The euro was flat at $1.0889 EUR= after losing 1 percent overnight. The common currency was on track to fall 2.3 percent on the week.
The U.S. currency was little changed against the safe-haven Swiss franc at 0.9873 franc CHF= after sliding to a near three-month low of 0.9550 franc on Wednesday in a knee-jerk reaction to Trump's win.
The Australian dollar, sensitive to swings in risk appetite, was little changed at $0.7614 AUD=D4 and on track for a 0.8 percent weekly drop.