* Dollar falls to 7-week low vs yen , dlr index down
* Euro surges to 6-wk high vs dlr at $1.3158
* ECB's Stark comments cool rate cut expectations
* SNB cuts rates by 50 bps, as expected
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By Tamawa Desai
LONDON, Dec 11 (Reuters) - The dollar fell broadly on Thursday as doubts surfaced whether demand for the U.S. currency, which has remained high during times of financial market stress, will hold up.
The U.S. currency hit a 7-week low against the yen and a 6-week low versus the euro.
Against a basket of currencies, the dollar was down 1.5 percent at 84.188 .DXY, its lowest since early November.
"The only factor that has been supporting the dollar over the last few months has been repatriation of funds out of overseas equity markets," Nick Parsons, head of markets strategy at nabCapital.
"As you start to see some stabilisation in asset markets, the only support for the dollar is being gradually eroded."
World stocks as measured by MSCI's all-country index has risen 2.1 percent so far this month, while the dollar has fallen around 2.5 percent on the month to date against a basket of six major currencies.
Implied interest rate spreads also moved in the euro's favour after European Central Bank Executive Board member Juergen Stark said late on Wednesday the bank did not have a lot of room for manoeuvre on rates after its cut last week.
Having climbed on a wave of risk aversion in recent months in tandem with the low-yielding Japanese yen, some analysts said further dollar demand into the year-end from deleveraging flows might be showing some sign of cooling. A fall in volatility also indicated that extreme risk aversion may be easing.
"We're seeing some year-end position adjustment. With volatility coming down, it may prompt some investors to dabble in risk," said Geoffrey Yu, strategist at UBS in London.
By 1259 GMT, the dollar was down 1.2 percent at 91.49 yen, closing in on a 13-year low of 90.87 yen.
The euro was up 1.6 percent on the day at $1.3233, having hit a six-week high of $1.3246.
Implied volatility on one-month dollar/yen currency options fell below 20 percent on Thursday compared with that level seen at the start of the week .
EURO SPIKES
The single currency spiked late on Wednesday after the Stark comments, while implied euro/U.S. rate spreads reflected a cooling in ECB rate cut expectations. By contrast, the U.S. Federal Reserve is expected to cut rates again next week.
"If the euro zone is being perceived to still have rates at substantially higher levels then obviously there's a positive rate spread, but I'm not convinced that its ultimately going to be positive as the dynamics of the euro zone economy are pretty weak," Rabobank markets strategist Jeremy Stretch said.
The euro also hit a record high against sterling , rising to a high of 88.97 pence, according to Reuters data.
The Swiss National Bank became the latest leading central bank to cut interest rates, but its impact was limited as the 50 basis point move paled in comparison with more dramatic reductions from other central banks last week.
The dollar dipped to 1.1890 Swiss francs compared with 1.1905 francs just before the SNB rate decision, and the euro rose to 1.5736 francs from 1.5625 francs .
There was little reaction in FX markets to the approval of a $14 billion auto industry bailout plan by the U.S. House of Representatives. [ID:nN09294627]
While the House stuck to its plan, uncertainty was seen in the Senate, where a razor-thin Democratic majority cannot ensure passage. A vote could come as early as Thursday, but some Republicans have vowed to slow or even block the legislation.
Elsewhere, cracks were appearing in the global effort to drag the world out of recession on Thursday with Germany attacking Britain ahead of an EU summit for rushing into debt to bail out industries and pump up growth. [nLB344189]
In an interview with Newsweek magazine, Finance Minister Peer Steinbrueck urged governments to pause before pledging to spend billions of dollars to try to push their economies out of trouble.
(Additional reporting by Veronica Brown; Editing by Victoria Main)
