NEW YORK: The safe-haven yen rose to more than four-month highs on Friday, while the dollar dropped to a nearly two-year low, as risk appetite diminished amid a slew of worries ranging from the delay in the stimulus package bill, the spike in virus cases, and U.S.-China tensions.

The dollar was on track to post its worst weekly performance in more than four months against a basket of currencies. Against a surging euro, the struggling dollar was on pace to post its largest weekly percentage loss since early June.

"Investors are shunning the greenback because they're worried about the prospects for the U.S. economy and even if the government comes up with another stimulus package, it may fall short, or may be too little, too late," said Kathy Lien, managing director at BK Asset Management in New York.

Senate Majority Leader Mitch McConnell said on Thursday that U.S. Senate Republicans will unveil their proposal next week for a fresh round of coronavirus aid, including more direct payments to Americans and a partial extension of enhanced unemployment benefits. 

He added that the administration has requested additional time to review the fine details of the proposal.

U.S. unemployment benefits expire next week and without the extension of those benefits, millions of unemployed Americans would struggle massively. BK's Lien this is a "hot-button issue" for investors and a major threat to the U.S. economy as the government tries to control the spread of the novel coronavirus.

U.S. coronavirus cases passed the 4 million mark, a milestone of a pandemic that has killed more than 143,000 Americans and thrown tens of millions out of work.

In midday trading, the dollar fell 1% against the yen to 105.81 yen, having dropped to 105.76 yen, the lowest since mid-March.

Against a basket of currencies, the dollar slid 0.4% to 94.42. Earlier in the session, it plunged to 94.402, a fresh 22-month low.

Analysts said U.S.-China tensions also undermined the dollar.

China's foreign ministry told the U.S. embassy early on Friday to close its consulate in the city of Chengdu, after Washington ordered the closure of the Chinese consulate in Houston. 

The euro, meanwhile, hit a fresh 22-month high against the dollar and was last up 0.3% at $1.1632.

IHS Markit's composite flash July Purchasing Managers' Index (PMI) readings for the euro zone came in above economists' expectations and showed activity bouncing back to growth in July as more businesses reopened after lockdowns to curtail the spread of the coronavirus. 

The Chinese yuan, a barometer of China-U.S. tensions, looked set for its worst week in three months. It was last down 0.2% at 7.0255 per dollar in the offshore market.

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Olga Cotaga in London; editing by Jonathan Oatis) ((gertrude.chavez@thomsonreuters.com; 646-301-4124; Reuters Messaging: rm://gertrude.chavez.reuters.com@reuters.net))