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Markets choppy on conflicting signals on U.S. debt deal

By Ian Chua

SYDNEY (Reuters) - U.S. stock index futures fell and the dollar retreated from a two-week high early in Asia on Friday as investors were confused over whether U.S. politicians would agree to a deal to avert the possibility of U.S. debt default next week.

House Republican leaders on Thursday offered a plan to extend the government's borrowing authority for several weeks, and the White House said it would consider the proposal, sparking a big rally on Wall Street.

The New York Times later reported President Barack Obama had rejected the plan, but Republican Paul Ryan told reporters Obama had neither accepted or rejected the proposal.

The conflicting news took the shine off markets, which had been buoyed by hopes of a breakthrough. U.S. stock index futures fell as much as 0.5 percent, trimming some of Thursday's 2 percent rally. They last traded 0.2 percent lower.

The dollar index, which tracks the greenback's performance against a basket of major currencies, was flat at 80.417, having pulled back from a two-week high of 80.595 overnight.

"Despite the perception of some agreement between both political parties, we have yet to get a definitive deal," RBC Capital Markets analysts wrote in a client note.

"That being said, our base-case remains that a short-term deal is the path of least resistance."

Traders had warned the situation is very fluid and any setback in resolving the U.S. government shutdown and debt ceiling standoff could see markets quickly turn tail.

(Editing by John Mair)