* Signs of progress on U.S. fiscal talks, but no deal yet
* Yen climbs from Friday's near 2-wk low vs dollar
NEW YORK, Oct 14 (Reuters) - The dollar fell on Monday and
the yen gained from safe-haven demand as U.S. lawmakers
struggled to reach a deal before this week's debt default
deadline, stoking some concern the United States may actually
While negotiations in the U.S. Senate to bring the fiscal
crisis to an end showed signs of progress on Sunday, 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.
"The U.S. dollar is generally lower as the U.S. budget and
debt ceiling impasse continues, and the U.S. government gets
closer to the date at which it will exhaust its ability to
borrow," said Nick Bennenbroek, head of currency strategy at
Wells Fargo Securities LLC in New York.
"Given the continued impasse, and with the debt ceiling
deadline of 17 October cited by U.S. Treasury Secretary (Jack)
Lew now just days away, the greenback is under pressure against
most G10 currencies."
The dollar slipped 0.4 percent to 98.17 yen, having
touched a low of about 98.05 yen earlier. The dollar retreated
from a near two-week high of 98.60 yen set on Friday.
The yen's liquidity makes it a relatively safe option during
times of uncertainty. Traders said bids for the U.S. dollar at
levels near 98.00 yen helped to limit the yen's rise.
The dollar was down 0.5 percent against the Swiss franc
at 0.9075 francs while the euro rose 0.3 percent
Investors may be wary of betting too heavily in one
direction, given the possibility of a last-minute deal which
could make the dollar rally, analysts said.
With currencies trading in tight ranges, volatility has
taken a hit. One-month euro/dollar volatility slipped on Monday,
near lows last seen in mid-September when the U.S. Federal
Reserve surprised markets by refraining from trimming its
stimulus, pushing vols to a six-year trough.
Some in the market were positioning for the political
gridlock to be broken just before the Oct. 17 deadline, said
Adam Myers, senior FX strategist at Credit Agricole in London.
"We think there might be a temporary extension (to the
government's borrowing authority) for two, three weeks and it
seems the market is coming around that view as well."
"The general view in the FX and bond markets is that neither
(political) party wants to be seen as not coming to any
agreement so a temporary one will be passed and that should see
a very small U.S. dollar relief rally and euro/dollar lower."
Market holidays in Japan and partial market closure in the
United States on Monday added to the subdued mood. Trading in
euro/dollar was the lowest since April 1, using
Reuters Dealing data, and May 6 for dollar/yen.
Lee Hardman, currency economist at BTMU in London said the
fiscal worries would support the U.S. Federal Reserve's decision
to maintain its stimulus.
"The more protracted negotiations are over the debt ceiling
and partial government shutdown, it increases the likelihood
that quantitative easing could remain in place for a longer
period of time," Hardman said.