* Signs of progress on U.S. fiscal talks, but deal elusive * Yen edges higher, dollar/yen off Friday's near 2-wk high By Anooja Debnath LONDON, Oct 14 (Reuters) - The dollar slipped on Monday and the yen gained on safe-haven demand over concerns the United States might default on its debt as lawmakers struggled to reach a deal on raising its borrowing facility ahead of this week's deadline. The dollar slipped 0.3 percent to 98.26 yen, having touched a low of about 98.05 yen earlier in the day. 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. Negotiations in the U.S. Senate to bring the fiscal crisis to an end showed signs of progress on Sunday but failed to give any concrete indication that a default would be avoided. Senate Majority Leader Harry Reid and Republican leader Mitch McConnell held talks that Reid called "substantive". Reid's remarks gave some hope that Congress might soon 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. "Over the weekend it was disappointing that an agreement still hasn't been reached. We think the closer we get to the debt ceiling deadline without an agreement, dollar/yen will come under the intensive selling pressure," said Lee Hardman, currency economist at BTMU. "The yen alongside the Swiss franc, safe haven currencies, should benefit if broader investor risk aversion picks up." 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 0.1 percent against the Swiss franc at 0.9114 francs while the euro rose 0.1 percent to $1.3560. Analysts said market players were also probably wary of betting too heavily in one direction, given the possibility of a last-minute deal which could see the dollar rally. Market holidays in Japan and partial market closure in the United States on Monday added to the subdued mood. "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. Low risk sentiment and worries about China's economic strength weighed on growth-linked currencies like the Australian dollar. Data released on Saturday showed export growth in China, Australia's top export market, fizzled in September to post a surprise fall. The Aussie was last down 0.1 percent at $0.9455. The currency's losses, however, were somewhat limited by news that China's iron ore imports surged to a record high in September, a move that augurs well for Australia's trade figures due out next month.