U.S. Markets close in 6 hrs 7 mins

FOREX-Dollar rises versus yen on bets of a U.S. debt deal

* Dollar/yen trades near two-week high

* Markets expect last-minute U.S. debt deal

* Senate aides say agreement near, details still unclear

* USD could see short relief rally on deal-strategist

By Anooja Debnath

LONDON, Oct 16 (Reuters) - The dollar rose against the yen

on Wednesday after U.S. lawmakers gave renewed assurances a deal

to avert a U.S. default was in reach at the end of a chaotic day

in Washington.

Officials said an agreement to lift the government's $16.7

trillion borrowing limit was near late on Tuesday after two

separate legislative efforts in the House were buried by

Republican rebellions, fraying market nerves.

The assurances helped keep the dollar near a two-week high

against the yen and a four-week high against a basket of


"Markets have been relatively benign in the light of what is

happening with the U.S.," said Thu Lan Nguyen, currency

strategist at Commerzbank. "If markets were expecting the worst

case of a default I think the dollar would be trading at an

entirely different level."

By 0735 GMT, the dollar was up 0.3 percent at 98.42 yen

, not far from the Oct. 1 high of 98.73. It was

flat against major currencies at 80.508, having hit a peak of

80.703 in the previous session, its highest since Sept 18.

The dollar had taken a hit from Fitch Ratings' warning that

it could cut the U.S. sovereign rating from AAA, citing the

political spat over the debt ceiling.

The U.S. currency might, however, rise further against the

yen in the near term if a deal to raise the ceiling is actually

reached, said Callum Henderson, Singapore-based global head of

FX research for Standard Chartered Bank.

"I would think that the short-term reaction would be

(dollar) positive, that investors would sell the yen, sell other

safe havens such as the Swiss franc and buy back dollar short

positions that have been put on ahead of such a deal."

"Thereafter people would say, well hang on a minute, maybe

U.S. growth will be hurt in the fourth quarter by what's been

going on for the past few days and weeks, so you may get some

degree of reassessment," he added.

Against the Swiss franc, the dollar edged up 0.1 percent to

0.9131. The euro eased 0.1 percent to $1.3515.

If Congress fails to reach a deal by Thursday, cheques would

likely go out on time for a short while for everyone from

bondholders to workers who are owed unemployment benefits. But

analysts warn that a default on government obligations could

quickly follow, potentially causing the U.S. financial sector to

freeze up and threatening the global economy.

Kathy Lien, managing director at BK Asset Management, said

in a note to clients that she did not expect the dollar to drop

another 5 or 10 percent even if the Oct. 17 deadline passed

without a deal.

"If Congress manages to pass a bill to raise the debt

ceiling and reopen the government by Monday, it would still be

enough time to avoid a default," she said, as the U.S. won't

miss its first bond payment exactly on Oct. 17.

Until the statutory borrowing limit is actually increased,

investors are seen shunning Treasury bills maturing in the

latter half of October because of the possibility of a technical