WELLINGTON, Oct 14 (Reuters) - The dollar fell on Monday while the yen rallied across the board, boosted by 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 fell to around 98.10 yen early in the Asia-Pacific session, easing from around 98.55 yen in late Friday trade. It retreated from a near two-week high around 98.60 yen hit late last week.
U.S. Democrats and Republican leaders met during the weekend to discuss ways to end a partial government shutdown and increase the nation's borrowing authority, although they remained at odds over how to achieve this.
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, raising serious concerns about fiscal stability and potentially having a catastrophic impact on financial markets.
The yen, whose vast liquidity makes it a relatively safe option during times of uncertainty, also rallied against the euro, which stumbled to around 132.90 yen, while gaining against sterling and the higher-yielding Australian and New Zealand dollars .
"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."
Concerns that Washington is heading towards a fiscal cliff also stung the dollar against the euro which rose to around $1.3560 from around $1.3540 late last week, while sterling climbed to $1.5980 from around $1.5945.
Risk aversion escalated as discussions come down to the wire ahead of the Thursday deadline. This pummelled higher-yielding currencies including the Australian dollar, which fell half a U.S. cent to $0.9420, and the New Zealand dollar , which eased to $0.8288 from around $0.8320.
As the deadline approaches, analysts expect the dollar will remain under pressure while the yen and other safe-haven currencies including the Swiss franc will be attractive.