* Euro sinks after Germany fails to form coalition
* Dollar index hits six-day high
* Bitcoin hits another all-time high (Updates to U.S. afternoon trading)
NEW YORK, Nov 20 (Reuters) - The dollar touched its highest against a basket of major currencies in nearly a week on Monday as the euro weakened on political risks linked to German Chancellor Angela Merkel's failure to form a three-way coalition government.
Merkel, whose conservatives were weakened after they won an election in September with a reduced number of seats, said she would inform the German president that she could not form a coalition, after the pro-business Free Democrats withdrew from negotiations.
The development thrust Germany, Europe's biggest economy, into a political crisis that raised worries among investors of a new election if Merkel cannot form a minority government.
The news revived "a key risk factor" for the continental currency, said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
"With the euro losing favor, given the messy can of worms that has been tipped over in Europe, that's helping the U.S. dollar weather its own political uncertainties," he said.
The dollar index rose to 94.104, its highest since Nov. 14.
The greenback also climbed against the Japanese yen, rising to a session high of 112.72 yen, climbing with U.S. stocks as traders took risk-on positions.
The Swiss franc, also favored in times of market risk aversion, fell against the dollar. The U.S. currency was last up 0.45 percent at 0.9928 franc.
The euro fell to $1.1720 following news of the failure to form a coalition German government. It dipped sharply against the yen to 131.16 yen, its weakest since Sept. 15.
Bitcoin was trading at just above $8,100 after hitting a record high of $8,226 on the Luxembourg-based Bitstamp exchange on Sunday.
Many analysts expect this to be a relatively calm week of trading, with U.S. markets closed for the Thanksgiving holiday on Thursday and with few major data releases.
Traders will await a speech by Federal Reserve Chair Janet Yellen late on Tuesday and the release on Wednesday of minutes from the Fed's November meeting for clues on the direction of U.S. monetary policy. (Reporting by Dion Rabouin; Editing by Dan Grebler)