* Dollar suffers as U.S. president suffers big setback
* Dollar index slides to near 4-mth low
* Dollar/yen hits 4-mth low, euro strongest since early Dec
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
By Ritvik Carvalho
LONDON, March 27 (Reuters) - The dollar slid to a four-month low against a basket of currencies on Monday as investors weighed the prospects of a U.S. fiscal spending boost under President Donald Trump after his failure to push through a key healthcare reform bill.
Trump’s inability to deliver on a major election campaign pledge marked a big setback for a Republican president whose own party controls Congress, and raised doubts over whether he will be able to see through tax reforms and a big spike in spending.
The dollar was down 0.5 percent on the day against the basket of other major currencies used to measure its broader strength. At 99.038 in early London trade, the index had been at its lowest since three days after Trump was elected in November, before recovering to 99.132 by 1145 GMT.
“I think the market is trying to establish whether or not there is too much optimism about reflation priced into the U.S. dollar,” said Rabobank currency strategist Jane Foley, in London.
The dollar index had risen to a 14-year high near 104.00 in early January when expectations for inflation-boosting stimulus under the Trump presidency were at their peak, with investors betting big on the so-called “Trumpflation” trade.
Speculators increased bullish bets on the U.S. dollar in the week up to last Tuesday for the third time on the trot, pushing net longs to their highest since Jan. 31, Commodity Futures Trading Commission (CFTC) data showed on Friday.
“Even though the dollar positioning appears to have come off its highest levels, dollar longs remain at historically elevated levels and that suggests that there could still be too much good news regarding reflation in the price,” Foley said.
Against the yen, the dollar fell more than one percent to 110.12 - its weakest since Nov. 18 - and was last trading around 110.37 yen. The Swiss franc, another traditional safe haven for capital, touched a 4-1/2-month high.
“We probably are aiming for the (Nov. 8) pre-election lows...that’s probably a viable target (for the dollar),” said BMO Capital Markets currency strategist Stephen Gallo, in London.
The euro reached $1.0874, its highest since Dec. 8. Sterling, the worst performer among the G10 group of major currencies against the dollar this year, hit an 8-week high of $1.2598.
Some analysts did argue that investors could be taking the wrong cue from Trump’s legislative defeat by linking it with his chances of successfully pursuing his economic agenda.
“We think linking this particularly difficult legislative undertaking with the rest of the Trump is flawed. It actually presents a scenario where tax reform can potentially be accelerated,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets.
For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets (Reporting by Ritvik Carvalho; additional reporting by Tokyo markets team; editing by Mark Heinrich/Keith Weir)