FOREX-Dollar slips as no sign of progress in U.S. budget standoff

Reuters

* Boehner's uncompromising comments raise concerns aboutU.S. debt default

* Dollar index stuck close to 8-month low

* Dollar/yen may fall below Y95 due to speculators' longpositions

* Safe-haven Swiss franc up 0.3 pct

By Hideyuki Sano

TOKYO, Oct 7 (Reuters) - The dollar dropped against the yenand the Swiss franc on Monday as the weekend produced littleprogress in Washington over the U.S. budget standoff, keepingthe greenback stuck close to 8-month lows against a basket ofmajor currencies.

Republican House Speaker John Boehner vowed on Sunday thatthere is "no way" Republican lawmakers will agree to a measureto raise the debt ceiling unless it includes conditions to reinin deficit spending.

The comment raised fears the U.S. Congress and PresidentBarack Obama could fail to reach a deal on raising the ceilingby Oct. 17, when the Treasury has estimated it will haveeffectively run out of cash.

The dollar index stood at 80.02 , down slightlyon the day and not far from eight-month low of 79.627 hit onThursday.

As traders who had bought back the dollar before the weekendto close their positions began the week by selling the dollarafresh, the dollar fell 0.4 percent against the yen to 97.07 yen, edging near a five-week low of 96.93 yen touched lastmonth.

"If things do not improve, the market may focus on the riskof a U.S. debt default. In that case, considering thepossibility of unwinding of yen short positions, the yen islikely to rise," said Osamu Takashima, chief FX strategist atCitigroup Global Market Japan.

"If the dollar falls to around 95 yen, underhedged Japaneseexporters may try to sell the dollar, further accelerating thedollar's fall," Takashima added.

Technically, the dollar/yen's 200-day moving average, at96.68 on Monday, is seen by many as a key support level towatch.

The dollar also fell against the Swiss franc, anothersafe-haven currency, to 0.9042 franc, down 0.3 percentfrom late last week and slipping towards a 19-month low of0.89675 set on Thursday.

The euro also held firm at $1.3571, not far fromThursday's eight-month high of $1.36465 against the broadly weakdollar.

Although most investors still expect an eleventh-hour dealto raise the debt ceiling and avert a historic debt default, thestandoff has already led to a government shutdown, raisingconcerns the still fragile U.S. economic recovery is now injeopardy of being derailed.

Should there be no deal by Oct. 17, analysts think theTreasury is still likely to opt to make good on its debt andinterest payments to avoid a meltdown in financial markets --but at a greater cost.

In such a case, Washington would have to radically slash anddelay other spending, which should surely damage the economy farmore than shutting down national parks and stalling medicalresearch projects.

The brinkmanship in Washington has prompted investors topush back expectations that the Federal Reserve will scale backits stimulus, undermining the case for dollar bulls.

The government shutdown also delayed the release of economicdata, including September U.S. payrolls data, originally due onFriday, which would be one of the most important data to gaugethe strength of a recovery in the U.S. job market.

"If we can't have data to look at, nothing can go forward,"said a frustrated currency trader at a Japanese bank.

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