FOREX-U.S. debt deal hopes lift dollar to one-month high

Reuters

* Signs of progress in U.S. debt talks ease default fear

* Dollar hits one-month high versus currency basket

* Rises 0.8 pct to hit one-month high versus Swiss franc

* RBA minutes help Australian dollar to 4-month high

By Jessica Mortimer

LONDON, Oct 15 (Reuters) - The dollar hit a one-month highagainst a basket of currencies on Tuesday, buoyed by signs U.S.lawmakers could soon reach a deal to avert default.

The dollar index rose 0.4 percent to 80.678, itshighest since Sept. 18.

U.S. Senate Majority Leader Harry Reid, a Democrat, said heand his Republican counterpart, Mitch McConnell, had made"tremendous progress" in talks, and suggested a deal could comeas early as Tuesday.

The comments raised expectations of a deal before a Thursdaydeadline to raise the U.S. debt ceiling. A source said the planwould end a partial government shutdown and cover the country'sborrowing needs at least through mid-February.

The dollar rose 0.8 percent to a one-month high against thesafe-haven Swiss franc of 0.9178 francs. It hit atwo-week high against the yen of 98.71 yen.

"The overall theme is that things in the U.S. are makingsome progress and that is an initial dollar positive," said IanStannard, head of European FX strategy at Morgan Stanley.

"We will see the dollar holding up quite well in thatenvironment."

The dollar also rose against the euro, which failed tobenefit from a survey showing a better than expected Germananalyst and investor sentiment.

The euro fell 0.6 percent on the day to hit atwo-week low of $1.3479.

Analysts said negative impact of the shutdown on the economywould encourage the U.S. Federal Reserve to further delayscaling back monetary stimulus, making the dollar's longer-termprospects less rosy.

"If we get some kind of temporary resolution in the U.S. itwill have a small positive short-term impact on the dollar. Butin the medium term this is clearly dollar negative," saidRichard Falkenhall, currency strategist at SEB.

Morgan Stanley's Stannard said the prospect of U.S. centralbank asset purchases staying at current levels for longer couldkeep higher-yielding currencies like the Australian dollar wellsupported, potentially lifting it towards $0.9660.

The Australian dollar hit a four-month high of$0.9548 against the greenback, helped by Reserve Bank ofAustralia minutes which showed no urgency to lower interestrates.

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