FOREX-Dollar slips vs yen as trade tensions and U.S. data weigh

* Trade worries support yen

* Weak U.S. producer prices support another Fed interest rate cut

* Pound slips on reports of Brexit talks close to breakdown (New throughout, updates rates and adds graphics and comments post-U.S. market open; new byline, changes dateline, previous LONDON)

NEW YORK, Oct 8 (Reuters) - The dollar slipped against the safe-haven Japanese yen on Tuesday amid renewed trade-related worries and as an unexpected drop in U.S. producer inflation supported the case for the Federal Reserve room to cut interest rates again later this month.

The Trump administration is moving ahead with discussions around possible restrictions on capital flows into China, with a focus on investments made by U.S. government pension funds, Bloomberg reported on Tuesday, citing people familiar with the matter.

The discussions comes at a delicate time for U.S.-China trade relations as top-level trade talks are scheduled to resume on Thursday and Friday, when Chinese Vice Premier Liu He meets with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin in Washington.

“This obviously is not a good precursor before any type of negotiations. There is some trepidation in terms of market expectations (for a deal),” said Minh Trang, senior currency trader at Silicon Valley Bank in Santa Clara, California.

Against the yen, which tends to benefit during geopolitical or financial stress as Japan is the world’s biggest creditor nation, the dollar fell 0.32% to 106.94 yen.

Investors, who have boosted the dollar in recent months thanks to its relatively high interest rate and a strong U.S. economy, were reluctant to push it significantly higher on Tuesday.

The dollar index, which measures the greenback against a basket of other currencies, was up 0.07% at 99.036.

U.S. producer prices unexpectedly fell in September, leading to the smallest annual increase in nearly three years, which could give the Federal Reserve room to cut interest rates again later this month.

“That’s typically bearish for the dollar,” said Trang.

Investors are waiting for the release of the U.S. Federal Open Market Committee’s minutes from its September meeting, due on Wednesday, for clues to whether the Fed will cut rates at its October meeting, in what would be its third interest rate cut for the year.

Meanwhile, sterling touched a one-month low against the euro on as investors took fright at reports that Brexit talks between Britain and the European Union were close to breaking down.

With 23 days before the United Kingdom is due to leave the bloc, there is no sign the impasse between London and Brussels could be bridged and both sides are jostling to avoid blame for a delay or a disorderly no-deal Brexit.

The pound was 0.69% lower against the greenback.

Reporting by Saqib Iqbal Ahmed Editing by Nick Zieminski