FOREX-Dollar bounces back on signs Washington is moving

Reuters

* Dollar supported as Obama starts meeting lawmakers

* Fed minutes shows most board members still expectedtapering to begin this year

* Yellen nomination seen as removing one uncertainty inuncertain world

* Dollar/yen finds strong support at 200-day moving average

* British pound loses steam after weak UK data

By Hideyuki Sano

TOKYO, Oct 10 (Reuters) - The dollar firmed broadly onThursday on signs Washington is clawing towards breaking astalemate and averting a possible U.S. debt default late nextweek.

The dollar index inched up to 80.47, extendingits recovery from an eight-month low of 79.627 hit a week ago.The euro was slightly easier at $1.3498 after havingfallen 0.35 percent overnight.

"There are hopes that Washington is moving on the deadlockover the government shutdown and debt ceiling. The dollar looksset to gain if these problems are solved," said Sho Aoyama,senior market analyst at Mizuho Securities.

House Republican leaders will visit the White House onThursday as the search intensifies for a way to break theimpasse.

Some Republicans and Democrats floated the possibility of ashort-term increase in the debt limit to allow time for broadernegotiations on the budget, even though there was no tangiblesigns of progress on Wednesday.

Against the yen, the dollar rose 0.4 percent to97.74, up more than a full yen from a two-month low of 96.55 yenhit on Tuesday.

One trigger for investors' buying was the dollar's successstaying above a key support from its 200-day moving average inthe past few days. The average stood at 96.83 on Thursday.

"Some players were hoping to buy the dollar at around 95yen. But once you think that the U.S. debt deal will be reachedin the end, then the latest dip offers a good opportunity tobuy," said a trader at a Japanese bank.

The U.S. currency received an additional boost after theminutes of the Federal Reserve's September meeting revealed thedecision not to slow stimulus was a "close call" and that mostboard members supported tapering bond-buying later this year.

Earlier on Wednesday, the dollar also gained on the newsthat Federal Reserve Vice Chairwoman Janet Yellen will benominated as head of the U.S. central bank.

Although the news could have been seen as negative for thedollar given that investors regard Yellen as a policy dove, ithelped soothe sentiment as the nomination was seen as reducinguncertainty in a market gripped by fear of a U.S. debt default.

U.S. Treasury Secretary Jack Lew has said it will run out ofadditional borrowing authority on Oct. 17.

Many investors are now looking to his testimony before theSenate Finance Committee later on Thursday on his latestestimate on the Treasury's funding positions as well as possiblecontingency plans.

Despite some signs of rapprochement in Washington, thedollar could still be vulnerable to concerns about a debtdefault.

Short-term U.S. government bill yields were at the highestlevel since the 2008 financial crisis, reflecting investoranxiety.

Elsewhere, the British pound lost steam following anunexpected fall in British industrial output and awider-than-expected trade deficit.

The pound shed 0.2 percent to $1.5927. extendingits 0.8 percent fall the previous day to a three-week low of$1.5917.

Against the euro, it stood near a five-week low of 84.875pence per euro, and was last trading at 84.72.

The immediate focus is on the Bank of England's policyannouncement at 1100 GMT, though no policy change is expected.

The Australian dollar lost 0.5 percent against a broadlyfirm U.S. dollar, unable to maintain its small gains after amixed bag of Australian employment data. The Aussie was at$0.9406 after its rally following the job data ran intoheavy resistance near $0.95.

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