* Dollar/yen trades near two-week high
* Markets expect last-minute U.S. debt deal
* Senate aides say agreement near, details still unclear
NEW YORK, Oct 16 (Reuters) - The dollar rose against the yen
on Wednesday but fell against most other major currencies on
renewed assurances from U.S. lawmakers that a deal to avert a
U.S. default and reopen the partially shut government was within
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 of Representatives
were buried by Republican rebellions, fraying market nerves.
The assurances helped stoked some risk tolerance and pushed
the dollar to a near a two-week high against the safe-haven yen
even as it fell against the euro, sterling and the Australian
"The markets appear nonplussed for the time being as
'headline fatigue' has clearly crept in and perhaps the greatest
surprise to any US budget deal may simply be a tepid reaction by
the market as most of the news appears to be priced in," said
Boris Schlossberg, managing director of FX Strategy at BK Asset
Management in New York.
In early New York trade, the dollar was up 0.3 percent at
98.42 yen, not far from the Oct. 1 high of 98.72. It
was down 0.2 percent against major currencies at 80.307,
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.
"Everyone is quite confident there will be an agreement in
the last minute if not before," said Niels Christensen, FX
strategist at Nordea in London. "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.
The euro was up 0.3 percent against the dollar at
$1.3563, having hit a low of $1.3478 in the previous session,
which was a two-week trough.
The British pound gained 0.2 percent against the dollar to
$1.6029 while the Australian dollar rose 0.1 percent to
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.
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