You would lose 3mm of trail, which is about 8% of your total going with a 35 stroke, but I don't think it could do any damage.
Are DNM rear shocks any good?
X-Fusion do a 165x38 that is available pretty cheaply on eBay. I haven't ridden X-Fusion, but they have a solid reputation and are OEM on loads of affordable full-sus bikes.