NEW YORK (Reuters) - The US dollar fell against the yen on Friday, as anxiety over the government's proposed $700 billion bailout plan and the seizure of Washington Mutual Inc. prompted investors to shun risky trades.

Traders sold high-yielding currencies such as the Australian dollar and bought the low-yielding, safe-haven yen as Republican and Democratic lawmakers clashed over the financial rescue plan in Washington.

US President George Bush acknowledged that there were disagreements, but expressed optimism that Congress and the White House would come together on the proposal to rescue the troubled US financial system.

The market still has a sense of optimism that some sort of deal would be done over the weekend, analysts said. That helped US stocks rebound to close mostly higher on Friday and provided some support for the greenback.

"There's a tremendous amount of uncertainty regarding the bailout plan," said Andrew Busch, global foreign exchange strategist at BMO Capital Markets in Chicago.

"(But) we've seen the dollar come back from the lows on the optimism of getting a deal done," he added.

"I'm fairly certain we're going to see an agreement over the weekend."

In late trading in New York, the dollar was down 0.3 percent against the yen at 106.09 yen, while the euro lost 0.5 percent to 155.02 yen.

Against the dollar, the euro slipped 0.1 percent to $1.4611.

"There is risk aversion at the moment and there is a huge amount of uncertainty and that's why we're seeing gold rally and the yen being the strongest performer across the board," said Shaun Osborne, chief currency strategist at TD Securities in Toronto.

The US government's seizure of Washington Mutual on Thursday night marked the largest failure in US banking history and further undermined sentiment.

The dollar index on the ICE Futures Exchange, a measure of the greenback's value against six major currencies, was little changed at 76.983.

Overall currency trading was lacking liquidity and direction with traders staying on the sidelines awaiting the outcome of the bailout package.

For the week, the dollar fell about 0.8 percent against the euro and 0.6 percent against the yen.

Market participants still expect the $700 billion US bank bailout package to be passed in some form, but they are unwilling to make big bets, analysts said.

"The market has been waiting patiently all week," said Amarjit Sahota, senior currency strategist at HIFX in San Francisco. "Most people are quite confident there'll be a positive resolution to the bailout plan."

"If the deal goes through, the dollar will benefit...There will be a renewed expectation that the Federal Reserve won't be looking to ease interest rate policy further," he added.

But some analysts caution any gains in the greenback may prove short-lived with next week's non-farm payrolls report expected to show the nation's unemployment rate remaining near six percent.

"The dollar is likely to come under pressure once investors start questioning the US economy's ability to grow in face of job losses and a massive deleveraging in the financial sector," said Antonio Sousa, chief strategist at DailyFX.com in New York.

The euro also came under some pressure after euro zone sources said market expectations about European Central Bank (ECB) rate cuts early next year or even sooner are reasonable.

Still, most economists say the ECB is expected to leave benchmark rates unchanged at its meeting next week.

The high-yielding Australian dollar fell 0.5 percent against the US dollar to US$0.8311 and 0.6 percent versus the yen to 88.21 yen, as investors unwound bets on high-yielding currencies.