* Obama to choose Yellen for top Fed job
* Focus remains on budget deadlock in Washington
* Minutes of Fed's Sept policy meeting due at 2 p.m. (1800GMT
By Wanfeng Zhou
NEW YORK, Oct 9 (Reuters) - The dollar rose on Wednesdayfrom an eight-month low against major currencies as news thatcurrent Federal Reserve Vice Chairwoman Janet Yellen will benominated as the next central bank chief removed someuncertainty in markets.
Yellen is widely seen as a dove, which will boostexpectations that the Fed will continue its asset buying program- a dollar negative. However, the news brought some relief toinvestors who have been on edge because of the budget deadlockin Washington.
President Barack Obama said he would not hold talks on waysto end the fiscal impasse while under threat from conservativeRepublicans, but agreed to discuss anything, including hishealthcare plan, if they restore government funding and raisethe debt limit.
Hopes that lawmakers will eventually reach an agreement alsohelped the dollar, analysts said. Congress must come up with adeal by Oct. 17, when Treasury Secretary Jack Lew has said thegovernment will run out of money to pay its bills.
"What the market is trying to do is looking through therhetoric and it appears that both sides behind closed doorsmight be coming up with some kind of a face-saving deal. That'sanother reason why the dollar is rallying," said BorisSchlossberg, managing director of FX Strategy at BK AssetManagement in New York.
The dollar index, which measures the greenback versusa basket of six currencies, rose 0.5 percent to 80.437, edgingaway from the 79.627 trough hit last Thursday, a low not seensince early February.
The euro fell 0.5 percent to $1.3507. Against theyen, the dollar rose 0.5 percent to 97.33 yen, movingaway from a two-month low of 96.55 touched on Tuesday.
Jane Foley, senior currency strategist at Rabobank, saidmarkets were wary that an eleventh-hour deal could drive dollarhigher and thus, no one wanted to be too short the currency.
"The Yellen news has cleared the air a bit. I think it isalso just people not wanting to be on the wrong side of anydollar rally," Foley said. "There are expectations that as soonas there is a deal in Washington there will be a relief rally inthe dollar so people don't want to be too short of the dollar."
The current budget impasse and its effect on the economyappeared to validate the Fed's decision to remain cautious andprobably even delay plans to trim its stimulus.
Later in the day, the Fed will release minutes from itspolicy meeting last month, when it shocked markets by decidingnot to begin reducing its $85 billion a month bond-purchaseprogram.
Signs of unease have started to emerge, such as investors'waning appetite for U.S. Treasury bills, which caused yields torise to five-year highs. Some markets players said this couldhave lent the dollar marginal support.
News of Yellen's nomination fuelled risk sentiment andpressured traditional safe-haven currencies like the Swiss franc. The dollar rose 0.8 percent to 0.9107 Swiss franc.
Obama will announce his selection of Yellen later onWednesday. If confirmed by the U.S. Senate, Yellen would replaceBen Bernanke, whose term ends on Jan. 31.
- Janet Yellen
- Barack Obama