* Yen up as market cheers opposition win in Japanese vote
* Chinese stocks drop over 6 percent, also helping the yen
* Dollar gains vs higher risk FX
* Euro dips vs dollar; EZ inflation still negative
By Jessica Mortimer
LONDON, Aug 31 (Reuters) - The yen rose broadly on Monday, hitting a seven-week high against the dollar, buoyed by a decisive result for the opposition in Japanese elections and as falls in equities and oil prices stoked risk aversion.
Sunday's landslide win by the Democratic Party of Japan (DPJ) sparked hopes that new policies will support consumer spending in an economy trapped in deflation and haunted by a weak growth outlook.
This lifted the Japanese currency, though traders noted gains could be limited as jitters set in about what a new government may herald.
A 6.7 percent slump in Chinese equities also buoyed the yen -- which typically gains in times of risk aversion -- and pushed the U.S. dollar up against perceived higher risk currencies such as sterling and the Australian dollar.
Trading was quiet, however, with UK markets closed for a public holiday and focus on key events later in the week, including a European Central Bank policy meeting on Thursday and U.S. non-farm payrolls figures on Friday.
Chinese equities dived to a three-month closing low on Monday and recorded their second biggest monthly loss in 15 years, causing European equities to fall 0.5 percent and pushing oil prices just below $71 per barrel.
"Clearly the yen is getting a boost from risk aversion and from falls in Chinese stocks" Stockholm-based SEB currency strategist Carl Hammer said.
He added that although investors are mostly upbeat on the global economic outlook, many are questioning whether the improvement justifies the recent significant gains in equities and in higher risk assets.
At 1100 GMT, the dollar was 0.6 percent lower at 93.05 yen, having earlier hit a low of 92.54 yen on trading platform EBS, its weakest level since mid-July. The euro lost 0.7 percent to 132.87 yen.
Against the dollar, the euro dipped to $1.4277. Provisional figures released on Monday showed euro zone inflation fell by 0.2 percent year-on-year in August, slightly less than the 0.3 percent decline forecast.
Among riskier currencies, the Australian dollar fell 0.6 percent against the dollar to $0.8372 and by 1 percent versus the yen to 77.92 yen, while sterling fell 0.4 percent against the dollar to $1.6203.
The oil sensitive Canadian dollar underperformed, with the U.S. dollar rising 0.9 percent to C$1.1013 as markets awaited data on second quarter Canadian gross domestic product at 1230 GMT.
UNCERTAINTY AHEAD
Analysts said investors may be cautious about buying the yen too aggressively, given the uncertainty that will accompany the advent of a new government in Japan, as well as the country's high levels of government debt.
A Reuters survey showed the Democratic Party of Japan's stance on fiscal discipline remains a source of concern for the markets, along with its stance on diplomacy including U.S.-Japan relations..
"We remain sceptical whether the yen will hold on to these gains as the incoming DPJ government is facing massive hurdles: unemployment is at a record high, public debt is the highest within the G7 and the Japanese social system is facing more and more problems due to demographic changes," Commerzbank analysts said in a note.
Going forward, investors may also turn a wary eye to political developments in Germany ahead of a general election on Sept. 27, with Chancellor Angela Merkel's party suffering losses in German regional elections on Sunday.
Any erosion in support could endanger Merkel's hopes of forming a government with the Free Democrats (FDP) and might force her into another "grand coalition" with the centre-left Social Democrats (SPD).
This could make it difficult for her to push through key aspects of her policy agenda.. (Reporting by Jessica Mortimer; editing by Chris Pizzey)