FOREX-Dollar slips vs yen as U.S. debt deal remains elusive


* Signs of progress on U.S. fiscal talks, but deal elusive

* Yen edges higher, dollar/yen off Friday's near 2-wk high

By Masayuki Kitano and Naomi Tajitsu

SINGAPORE/WELLINGTON, Oct 14 (Reuters) - The dollar fell onMonday while the yen rose on safe-haven demand due to concernsthe United States may default on its debts as lawmakersnegotiate a deal to raise its borrowing facility ahead of adeadline this week.

The dollar slipped 0.3 percent versus the yen to about 98.29yen, having touched a low of about 98.05 yen earlier inthe day. The greenback retreated from a near two-week high of98.60 yen set on Friday.

The yen, whose liquidity makes it a relatively safe optionduring times of uncertainty, also gained ground against thehigher-yielding Australian dollar, with the Aussiedollar slipping by about 0.3 percent to 93.04 yen.

Senate negotiations to bring a simmering fiscal crisis to anend showed signs of progress on Sunday, but there were noguarantees that a historic default would be avoided.

Senate Majority Leader Harry Reid and Republican leaderMitch McConnell held talks that Reid later called "substantive".Reid's remarks gave some hope that Congress soon might passlegislation to fund the government and raise its borrowingauthority.

Failure to break the stalemate before Thursday, the deadlineto raise the debt ceiling, would leave the world's biggesteconomy unable to pay its bills in the coming weeks, potentiallyhaving a catastrophic impact on financial markets.

"The markets went home on Friday expecting a deal would beimminent. While there's a heap of conciliatory language around,there's no deal yet," said Sam Tuck, currency strategist at ANZBank in Auckland.

"Now that we're in the week where the debt ceiling will behit, the yen's gaining on safe-haven bids."

Traders said bids for the U.S. dollar at levels near 98.00yen helped to limit the yen's rise.

Analysts said market players were also probably wary oftilting bets too heavily in one direction, given the possibilityof a last-minute deal to raise the U.S. debt ceiling.

"I think people are kind of in limbo... A bit fearful buthopeful as well that something can be done before the deadline,"said Sim Moh Siong, FX strategist for Bank of Singapore.

The messy U.S. debt affair also dented the dollar againstthe safe haven Swiss franc and lent support to the euro.

The dollar slipped 0.3 percent versus the Swiss franc to0.9096, while the euro edged up 0.1 percent to $1.3563.

Subdued risk sentiment and worries about China's economicstrength weighed on the Australian dollar, which eased0.1 percent to $0.9467.

The Aussie dollar, however, also showed resilience, havingpulled up from an intraday low of $0.9410.

Data released on Saturday showed that China's export growthfizzled in September to post a surprise fall as sales toSoutheast Asia tumbled, a disappointing break to a recent run ofindicators that had signalled its economy was gaining strength.

Still, China's iron ore imports surged to a record of morethan 74 million tonnes in September, in a move that augurs wellfor Australia's trade figures due out next month.

Iron ore is Australia's single biggest export earner.

The market often uses the Australian dollar as a liquidproxy to hedge against economic news out of China, Australia'stop export market.


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