FOREX-Elusive U.S. debt deal pushes dollar lower versus yen
* 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 default. 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 to $1.3580. 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.