* Dollar rises vs yen on prospect of U.S. debt deal * Republicans offer plan to stave off default threat * Rising risk sentiment helps growth-linked currencies By Anooja Debnath LONDON, Oct 11 The dollar traded near a two-week peak versus the yen on Friday and growth-linked currencies were in demand, boosted by hopes of an end to the stalemate over the U.S. budget. Fears of a possible U.S. debt default have damaged the credibility of the world's largest economy and hurt the dollar, with some institutions cutting the use of U.S. Treasury bills as collateral for transactions in stocks and swaps. But Republicans offered to extend the government's borrowing authority for several weeks, temporarily putting off a default, encouraging investors to pare positions in safe-haven currencies including the yen. The dollar was up 0.2 percent at 98.32 yen, just below an intraday high of 98.56 yen that was the highest since Oct. 1. Support was at the 200-day moving average of 96.89 yen. The Australian and New Zealand dollars, which tend to benefit at times of econmic optimism, were up 0.2 percent at $0.9473 and 0.8 percent at $0.8341 respectively. The euro rose 0.4 percent to $1.3565. "Markets believe some kind of deal or postponement (of default) will ease the tension... We had a very strong rally in equities and dollar/yen is higher and that is a signal there is a bit more risk appetite in the market," said Niels Christensen, FX strategist at Nordea. "There is still a lot of uncertainty and I don't expect any big moves today in currencies." Paul Bednarczyk, head of research at 4CAST said markets were hoping for a deal before the end of the weekend. "If we get a deal that is more than just can-kicking, then equities will go up and dollar/yen will go up with it. There is a very reliable correlation at the moment and nobody is going to fight it," he said, adding that the dollar could target 100 yen. The fiscal impasse has taken the spotlight off the Federal Reserve. But there are growing expectations the central bank will have to evaluate the impact of a government shutdown entering its 11th day before starting to scale back its stimulus. "If it was not already, it will be near impossible for the Fed to commence tapering before year-end if only a six-week debt extension is agreed," said Tom Levinson, FX strategist at ING, in a note to clients. He said the dollar index would struggle to sustain a rally to 81.00, the level it reached before the Fed surprised markets on Sept. 18 by opting not to start trimming its bond buying. The index, which tracks the greenback against a basket of major currencies, was down 0.2 percent at 80.314, having risen to 80.595 on Thursday, its highest since Sept. 26.