* Dollar/yen sheds losses as equities rebound
* Underlying optimism on US tax reform supports dollar
* Bitcoin hits record high of $14,870
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
By Jemima Kelly
LONDON, Dec 7 (Reuters) - The dollar hit a two-week high against a basket of currencies on Thursday, recovering recent losses against the yen, on stronger risk appetite across markets and on optimism that the United States will successfully push through a tax reform programme.
The greenback had slipped against the safe-haven Japanese currency on Wednesday after U.S. President Donald Trump said he would recognise Jerusalem as the capital of Israel — a move that imperiled Middle East peace efforts and provoked widespread condemnation.
But as global stock prices edged higher on Thursday after three days of losses, investors bought back into the U.S. currency, which gained 0.4 percent on the day to trade at 112.72 yen.
Against a basket of six major currencies, the dollar hit a two-week high of 93.745.
U.S. Senate Republicans agreed to talks with the House of Representatives on sweeping tax legislation on Wednesday, amid early signs that lawmakers could bridge their differences and agree on a final bill ahead of a self-imposed Dec. 22 deadline.
“Passage of U.S. tax reform is the main upside risk to economic growth, with far-reaching effects,” wrote BofA Merrill Lynch analysts in a 2018 outlook.
But although most investors see the tax reform as a pro-growth policy that should support the dollar, not all analysts agree that it would be straightforwardly dollar-positive.
“The corporate tax reform has the potential to have a significantly positive effect on the greenback, but due to other parts of the reform - those that are aimed at preventing tax base erosion,” wrote Commerzbank currency strategists in a note to clients.
“It is still unclear how this part of the reform will be designed...so we might end up with something that was not included in either of the proposals. It is therefore far from certain how much of a dollar-positive effect the tax reform will result in.”
Upbeat U.S. private-sector employment data released on Wednesday also provided some support to the dollar.
The move higher in dollar/yen came amid a surge in Tokyo shares, which had slumped the previous day on Middle East concerns.
But considering the Nikkei’s gains - the index was up almost 1.5 percent - the dollar’s rise versus the yen appeared limited.
“The yen will be sensitive if geopolitical tensions rise again, and I think there’s an inevitability to that, so I don’t think there’s going to be too much updside for dollar/yen in this environment,” said Rabobank currency strategist Jane Foley, in London.
The euro slipped to a two-week low of $1.1776 against a stronger dollar.
Bitcoin soared to a record high of $14,870 on the Bitstamp exchange, continuing a staggering surge from less than $1,000 at the beginning of the year.
The Canadian dollar added to losses suffered on Wednesday after the Bank of Canada held interest rates steady and showed enough caution to dampen expectations for a hike early next year. (Reporting by Jemima Kelly; Editing by Angus MacSwan)