* Democrats manoeuvre to fast-track Biden's $1.9 trillion stimulus
* Euro under pressure as bloc faced with double-dip recession
* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E
By Kevin Buckland
TOKYO, Feb 3 (Reuters) - The dollar traded near a two-month high versus the euro on Wednesday as investors looked to a widening disparity between the strength of the U.S. and Europe's pandemic recoveries.
The view was bolstered by moves in Washington toward fast-tracking more stimulus spending that contrasted with concerns about extended European lockdowns and expectations for a decline in euro zone growth this quarter. dollar was little changed at $1.2038 per euro EUR=EBS early in the Asian session, after strengthening to $1.20115 overnight for the first time since Dec. 1.
The broader dollar index =USD was mostly flat at 91.081 after rising to a two-month high of 91.283 in the previous session.
The greenback's advances come despite a rise in equities amid improving risk sentiment, defying the currency's historic inverse directional relationship with stocks.
However, many analysts expect the correlation to reassert itself as the year progresses, and for the dollar to decline as global growth recovers amid massive fiscal stimulus and ultra-easy monetary policy.
"The relative growth dynamics between Europe -- weak -- and the U.S. -- better -- are favouring the USD at the moment, but it remains to be seen if this can be a longer-lasting theme," wrote National Australia Bank FX strategist Rodrigo Catril, who expects the euro to weaken below $1.20 in the near-term.
The dollar also benefited from a massive bout of short-covering, especially against the yen where hedge funds had racked up their biggest short bets against the greenback since October 2016.
The U.S. currency was little changed at 105.025 yen JPY=EBS after gaining to 105.17 overnight for the first time since Nov. 12.
Many see the dollar's rebound since early last month as a correction after its relentless decline last year, although some think the dollar's new-found firmness could reflect a retreat of the bearish sentiment on the currency.
The dollar index has rebounded 1.2% this year after an almost 7% decline in 2020.
"The bear case is facing a short-term stress test," Westpac strategists wrote in a note.
"Our base case is that without short-term yield support there's a limit to how far U.S. recovery optimism can boost the USD," they wrote. "Global reflation and the Fed's determined dovish stance limits upside potential beyond that."
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Currency bid prices at 0037 GMT Description
RIC
Last
U.S. Close Pct Change
YTD Pct
High Bid
Low Bid
Previous
Change
Session
Euro/Dollar
EUR=EBS
$1.2040
$1.2045
-0.04%
-1.46%
+1.2045
+1.2037 Dollar/Yen
JPY=D3
105.0120
105.0900
-0.09%
+1.66%
+105.0520 +105.0000 Euro/Yen
EURJPY=
126.43
126.40
+0.02%
-0.39%
+126.5200 +126.4100 Dollar/Swiss
0.8977
0.8975
+0.04%
+1.49%
+0.8980
+0.8972 Sterling/Dollar GBP=D3
1.3665
1.3670
-0.03%
+0.03%
+1.3668
+1.3659 Dollar/Canadian CAD=D3
1.2781
1.2781
+0.01%
+0.38%
+1.2786
+1.2780 Aussie/Dollar
AUD=D3
0.7608
0.7608
+0.01%
-1.09%
+0.7615
+0.7602 NZ
NZD=D3
0.7196
0.7192
+0.10%
+0.25%
+0.7205
+0.7187 Dollar/Dollar
All spots FX= Tokyo spots AFX= Europe spots EFX= Volatilities FXVOL= Tokyo Forex market info from BOJ TKYFX
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ World FX rates
https://tmsnrt.rs/2RBWI5E
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