By Richard Leong
NEW YORK (Reuters) - The dollar rose to its highest level since April 2003 against a basket of currencies on Friday, marking its biggest two-week increase since March 2015 as traders piled bets on a massive dose of fiscal stimulus under a Trump U.S. presidency.
Also stoking the dollar rally were growing expectations the Federal Reserve would raise interest rates next month on signs of rising inflation and improved economic growth.
The greenback has climbed 7.3 percent against the yen in two weeks, its steepest such gain since January 1988 and its second-strongest performance in the era of floating exchange rates.
The dollar has been on a tear following Republican Donald Trump's Nov. 8 victory over Democratic rival Hillary Clinton, tracking surging U.S. Treasury yields amid concerns government borrowing to fund possible stimulus programs could stoke inflation.
Traders have seized on the tax cuts, deregulation and infrastructure spending that Trump campaigned on as negatives for bonds and positives for the dollar.
"It has caused a wave of dollar buying across the board," said Richard Scalone, co-head of foreign exchange at TJM Brokerage in Chicago.
To be sure, it remained unclear how many, if any, of the policy proposals would materialize. Trump's stance on immigration and trade, if they become law, could hurt the dollar, analysts said.
"The dollar is the wild card," said Richard Bernstein, chief executive officer of Richard Bernstein Advisors LLC said at the Reuters Global Investment Outlook Summit in New York. [nL1N1DJ1AM]
The dollar index, hit 101.48, its highest since early April 2003 before paring gains to 101.25, up 0.4 percent on the day.
The gauge of the greenback against a basket of six major currencies was on track for a 4.2 percent two-week gain, its biggest since March 2015.
While Fed Chair Janet Yellen did not explicitly say the U.S. central bank would hike rates at its Dec. 13-14 policy meeting, she told a congressional panel on Thursday that a rate increase was likely "relatively soon."
Political and economic worries abroad provided further lift for the dollar.
The euro, which is vulnerable to a slew of political risks including an Italian constitutional referendum next month and French and German elections next year, hit an 11-month low of $1.0567. It was last down 0.3 percent at $1.0595.
The greenback hit a 5-1/2 month high against the yen of 110.92 before retreating to 110.64 yen, up 0.6 percent from Thursday.
China's yuan fell to an eight-year low at 6.9850 yuan per dollar. [CNY/]
(Additional reporting by Jemima Kelly in London and Tokyo markets team; Editing by Andrea Ricci and Meredith Mazzilli)