* Dollar/yen trades near two-week high
* Markets expect last-minute U.S. debt deal
* Senate aides say agreement near, details still unclear
By Anooja Debnath
LONDON, Oct 16 (Reuters) - The dollar rose against the yen
on Wednesday on renewed assurances from U.S. lawmakers that a
deal to avert a U.S. default and reopen the partially-shut
government was within reach.
Officials said an agreement to lift the government's $16.7
trillion borrowing limit was near late on Tuesday after two
separate legislative efforts in the House were buried by
Republican rebellions, fraying market nerves.
The assurances, however, helped the dollar trade close to a
two-week high against the safe-haven yen and a four-week high
against a basket of currencies.
"Everyone is quite confident there will be an agreement in
the last minute if not before," said Niels Christensen, FX
strategist at Nordea. "If they reach a deal it will help risk
appetite, so we might see a move higher in dollar/yen," he said,
adding that the pair could target the 100 mark on a deal.
By 1000 GMT, the dollar was up 0.2 percent at 98.35 yen
, not far from the Oct. 1 high of 98.73. It was
down 0.1 percent against major currencies at 80.418, but still
close to the previous session's peak of 80.703, its highest
since Sept 18.
The dollar had taken a hit from Fitch Ratings' warning that
it could cut the U.S. sovereign rating from AAA, citing the
political spat over the debt ceiling.
The euro was up 0.1 percent against the dollar at
$1.3534, having hit a low of $1.3479 in the previous session,
which was a two-week trough.
Analysts said the prolonged debt debate would probably delay
the U.S. Federal Reserve's move to begin trimming its
bond-buying programme of stimulus for the economy.
"By now we have had two weeks of a (partial) government
shutdown and that is certainly going to have an impact on the
economy and will affect monetary policy," said Thu Lan Nguyen,
currency strategist at Commerzbank.
"Until now our base case was that the Fed would taper in
December but if we continue with the government shutdown the
chances are increasing that tapering is postponed to some time
in the first half of 2014."
If Congress fails to reach a deal by Thursday, cheques would
likely go out on time for a short while for everyone from
bondholders to workers who are owed unemployment benefits. But
analysts warn that a default on government obligations could
quickly follow, potentially causing the U.S. financial sector to
freeze up and threatening the global economy.
Kathy Lien, managing director at BK Asset Management, said
in a note to clients that she did not expect the dollar to drop
another 5 or 10 percent even if the Oct. 17 deadline passed
without a deal.
"If Congress manages to pass a bill to raise the debt
ceiling and reopen the government by Monday, it would still be
enough time to avoid a default," she said, as the U.S. won't
miss its first bond payment exactly on Oct. 17.
Until the statutory borrowing limit is actually increased,
investors are seen shunning Treasury bills maturing in the
latter half of October because of the possibility of a technical