* Deal on U.S. debt ceiling elusive, negotiations continue
* 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 on Monday while the yen rose on safe-haven demand due to concerns the United States may default on its debts as lawmakers negotiate a deal to raise its borrowing facility ahead of a deadline this week.
The dollar was last down 0.3 percent at 98.31 yen, having touched a low of about 98.05 yen earlier in the day. The greenback retreated from a near two-week high of 98.60 yen set on Friday.
Senate negotiations to bring a simmering fiscal crisis to an end showed signs of progress on Sunday, but there were no guarantees that a historic default would be avoided.
Negotiations that were likely to stretch into the week continued between the Senate's top Democrat and Republican.
Failure to break the stalemate before Thursday, the deadline to raise the debt ceiling, would leave the world's biggest economy unable to pay its bills in the coming weeks, potentially having a catastrophic impact on financial markets.
"The markets went home on Friday expecting a deal would be imminent. While there's a heap of conciliatory language around, there's no deal yet," said Sam Tuck, currency strategist at ANZ Bank in Auckland.
"Now that we're in the week where the debt ceiling will be hit, the yen's gaining on safe-haven bids."
The messy U.S. debt affair also dented the dollar against the safe haven Swiss franc and lent support to the euro.
The dollar slipped about 0.3 percent versus the Swiss franc to 0.9100, while the euro inched up 0.1 percent to $1.3556.
The yen, whose vast liquidity makes it a relatively safe option during times of uncertainty, also gained ground against the euro and the higher-yielding Australian dollar .
The euro slipped 0.2 percent to 133.22, while the Australian dollar fell about 0.5 percent to 92.81 yen .
In the near term, the U.S. dollar could find modest support against the yen as there is some buying interest at levels near 98.00 yen, said Jeffrey Halley, FX trader for Saxo Capital Markets in Singapore.
"There are (dollar) bids into 98.00 at the moment," Halley said. He added that trading interest from Japanese players is likely to be light on Monday, with Tokyo's financial markets closed for a public holiday.
Halley added that the dollar could regain some ground against the yen during the session after the earlier selloff.
"These Monday morning knee-jerks normally get reversed during the day, so I would expect dollar/yen to squeeze back to 98.50/60 area this morning," he said.
The Australian dollar slipped 0.3 percent against the dollar to $0.9446, having fallen to $0.9410 earlier on Monday.
The Aussie was also further crimped in the wake of data showing that exports from Australia's top trading partner China unexpectedly dropped in September from a year earlier.
Data released on Saturday showed that China's export growth fizzled in September to post a surprise fall as sales to Southeast Asia tumbled, a disappointing break to a recent run of indicators that had signalled its economy gaining strength.