* Dollar/yen trades near two-week high
* Markets expect last-minute U.S. debt deal
* Senate aides say agreement near, details still unclear
* USD could see short relief rally on deal-strategist
By Anooja Debnath
LONDON, Oct 16 (Reuters) - The dollar rose against the yen
on Wednesday after U.S. lawmakers gave renewed assurances a deal
to avert a U.S. default was in reach at the end of a chaotic day
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 helped keep the dollar near a two-week high
against the yen and a four-week high against a basket of
"Markets have been relatively benign in the light of what is
happening with the U.S.," said Thu Lan Nguyen, currency
strategist at Commerzbank. "If markets were expecting the worst
case of a default I think the dollar would be trading at an
entirely different level."
By 0735 GMT, the dollar was up 0.3 percent at 98.42 yen
, not far from the Oct. 1 high of 98.73. It was
flat against major currencies at 80.508, having hit a peak of
80.703 in the previous session, 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 U.S. currency might, however, rise further against the
yen in the near term if a deal to raise the ceiling is actually
reached, said Callum Henderson, Singapore-based global head of
FX research for Standard Chartered Bank.
"I would think that the short-term reaction would be
(dollar) positive, that investors would sell the yen, sell other
safe havens such as the Swiss franc and buy back dollar short
positions that have been put on ahead of such a deal."
"Thereafter people would say, well hang on a minute, maybe
U.S. growth will be hurt in the fourth quarter by what's been
going on for the past few days and weeks, so you may get some
degree of reassessment," he added.
Against the Swiss franc, the dollar edged up 0.1 percent to
0.9131. The euro eased 0.1 percent to $1.3515.
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