* Threat of U.S. credit downgrades sparks dollar selling
* Safe-haven Swiss franc rises broadly, hits record high vs dollar
* Yen also in demand, hits four-month high versus ailing greenback
By Neal Armstrong and Naomi Tajitsu
LONDON, July 25 (Reuters) - The dollar hit a record low versus the Swiss franc and a four-month trough against the yen on Monday as the impasse over raising the U.S. debt ceiling unsettled financial markets and fueled demand for perceived safe-haven currencies.
The Swiss franc was the biggest beneficiary of the demand for safe havens, pushing the dollar nearly 2 percent lower to an all-time low of 0.8021 franc on trading platform EBS . The euro fell the same amount versus the Swiss currency.
Most investors expect a deal will be done before the Aug. 2 deadline to avert default, but the lack of progress in talks over how to cut the budget deficit and the possibility of a ratings downgrade Of U.S. debt weighed on risk sentiment, which analysts said would keep dogging the dollar.
The U.S. Treasury says it will run out of money to pay the country's bills after Aug. 2, though some analysts say the Treasury may be able to scrape some money together to get by for a week or two -- a scenario that some market players are starting to think cannot be ruled out.
Many traders think the dollar could test a record low of 76.25 yen if concerns about the U.S. debt ceiling worsen, while they also expect the U.S. currency will keep plumbing all-time troughs versus the Swiss franc.
"It's likely the U.S. will stitch up some sort of deal to avoid a technical default next week, but it could drag on until the last moment," said Adam Cole, global head of FX at RBC.
"If it does drag on, the only clear cut conclusion you can draw is that dollar/yen goes down, and dollar/Swiss goes down, and we're seeing a miniature version of that today."
U.S. GDP, AUCTION RISKS
The dollar slipped to 78.05 yen, its weakest since mid-March, with traders reporting selling from Asian sovereign accounts.
It slipped slightly to 74.141 versus a currency basket, closing in on 73.889, a six-week low hit last week.
"Below 74 in the dollar index could see it potentially down towards the record lows (around 70.70) hit in 2008," said Kathleen Brooks, head of research strategy at FOREX.com.
"If U.S. GDP data on Friday shows weak growth added to an unsustainable debt burden, that has to be toxic for the dollar," she added.
Cole at RBC warned a further, significant sell-off in the dollar against the yen and the Swiss franc was likely if Washington enters a technical default on its debt next month, of which he said the market was pricing in a 10 percent chance.
In such a scenario, the dollar could plunge to 75 yen, while dollar/Swiss could fall "two or three big figures," he said.
Yet he added: "You've got to assume as a central case that the U.S. won't walk itself into a default, that ultimately when push comes to shove something will come together either temporarily or longer term."
The euro was last up 0.1 percent at $1.4375 , but the euro zone's lingering debt risks kept traders wary over the single currency. It fell 2 percent versus the Swiss franc to 1.1531 francs .
The euro initially slipped against the dollar after Moody's downgraded Greece by three notches to Ca from Caa1, though the impact was limited because the move was not a surprise and traders were focussed on the U.S. debt saga.
The sweeping bailout and policy package agreed by euro zone leaders last week helped stem market panic in the short run. But analysts say the measures may not be enough to bring the crisis to a swift resolution.
In addition to U.S. growth data this week, JPMorgan analysts said U.S. bond auctions posed another downside risk to the dollar. The U.S. Treasury will offers two-year paper on Tuesday, five-year bonds on Wednesday, and seven-year debt on Thursday.
"Low levels of indirect participation in the Treasury auctions this week ... could lead USD lower against JPY, CHF, and EUR as demand to own UST weakens," they said in a note. (Editing by Hugh Lawson)