* Dollar hits 3-month high vs yen, 5-month high vs franc
* U.S. tax cuts clear budget hurdle in Senate
* Euro hits 2-1/2-year high vs Swiss franc (Updates to U.S. market open, adds data, quote, changes dateline; previous LONDON.)
NEW YORK, Oct 20 (Reuters) - The dollar rose on Friday, on track for its biggest daily gain in more than two weeks, as progress on U.S. tax reforms raised prospects of a fiscal lift to the economy, bolstering investor appetite for risk.
The dollar rose to a three-month high against the Japanese yen, at 113.46 yen, and a five-month high against the Swiss franc, touching 0.9846 franc. Traders seek the yen and Swiss franc in times of uncertainty and fear and sell the currencies when they favor riskier assets.
"This is clearly a picture of somewhat of a risk-on rotation today, and its ignited some of the animal spirits as we take another step closer to the potential for tax reform coming to fruition," said Bill Northey, chief investment officer at U.S. Bank Wealth Management in Helena, Montana.
"Because from the standpoint of what has the potential to impact economic trajectory and capital markets trajectory, it really is tax reform."
Senate approval of a budget blueprint on Thursday for the 2018 fiscal year cleared a critical hurdle for Republicans to pursue a tax-cut package without Democratic support.
Investors have also viewed as bullish for the dollar remarks this week from Fed Chair Janet Yellen and other members of the Federal Reserve that suggest the central bank is moving forward with another rate hike this year.
Price pressures remain subdued in the United States despite tight labor markets with core PCE inflation, one of the Fed's favorite measures, at a one-year low of 1.3 percent in August.
Analysts do not expect a rebound in price pressures, with strategists from CLSA Research saying inflation has probably peaked in this cycle.
Ahead of national elections in Japan on Sunday, surveys suggest Prime Minister Shinzo Abe's ruling coalition is on track roughly to match the two-thirds "super majority" it held in parliament's lower house before the snap vote was called.
The New Zealand dollar sank to a five-month low on concerns the new Labour coalition will take a harder stance on immigration and foreign investment than the outgoing center-right government.
The U.S. dollar's rebound dragged the euro down half a percent to $1.1784 before a European Central Bank meeting next week, where policymakers are seen cutting bond purchases but voting for an extension in stimulus.
Enhanced risk appetite also helped boost the euro to its highest against the Swiss franc since January 2015, when the Swiss National Bank scrapped its peg with the euro. (Reporting by Dion Rabouin and Saikat Chatterjee; Editing by John Stonestreet and Dan Grebler)