October 14, 2013 / 4:11 AM / 4 years ago

FOREX-Dollar slips vs yen as U.S. debt deal remains elusive

* Signs of progress on U.S. fiscal talks, but deal elusive

* Yen edges higher, dollar/yen off Friday's near 2-wk high

By Masayuki Kitano and Naomi Tajitsu

SINGAPORE/WELLINGTON, Oct 14 (Reuters) - The dollar fell on Monday while the yen rose on 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 slipped 0.3 percent versus the yen to about 98.29 yen, having touched a low of about 98.05 yen earlier in the day. The greenback retreated from a near two-week high of 98.60 yen set on Friday.

The yen, whose liquidity makes it a relatively safe option during times of uncertainty, also gained ground against the higher-yielding Australian dollar, with the Aussie dollar slipping by about 0.3 percent to 93.04 yen.

Senate negotiations to bring a simmering fiscal crisis to an end showed signs of progress on Sunday, but there were no guarantees that a historic default would be avoided.

Senate Majority Leader Harry Reid and Republican leader Mitch McConnell held talks that Reid later called "substantive". Reid's remarks gave some hope that Congress soon might pass legislation to fund the government and raise its borrowing authority.

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, potentially having a catastrophic impact on financial markets.

"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."

Traders said bids for the U.S. dollar at levels near 98.00 yen helped to limit the yen's rise.

Analysts said market players were also probably wary of tilting bets too heavily in one direction, given the possibility of a last-minute deal to raise the U.S. debt ceiling.

"I think people are kind of in limbo... A bit fearful but hopeful as well that something can be done before the deadline," said Sim Moh Siong, FX strategist for Bank of Singapore.

The messy U.S. debt affair also dented the dollar against the safe haven Swiss franc and lent support to the euro.

The dollar slipped 0.3 percent versus the Swiss franc to 0.9096, while the euro edged up 0.1 percent to $1.3563 .

Subdued risk sentiment and worries about China's economic strength weighed on the Australian dollar, which eased 0.1 percent to $0.9467.

The Aussie dollar, however, also showed resilience, having pulled up from an intraday low of $0.9410.

Data released on Saturday showed that China's export growth fizzled in September to post a surprise fall as sales to Southeast Asia tumbled, a disappointing break to a recent run of indicators that had signalled its economy was gaining strength.

Still, China's iron ore imports surged to a record of more than 74 million tonnes in September, in a move that augurs well for Australia's trade figures due out next month.

Iron ore is Australia's single biggest export earner.

The market often uses the Australian dollar as a liquid proxy to hedge against economic news out of China, Australia's top export market.

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