GLOBAL MARKETS-Asian stocks hit 3-wk highs on hopes of U.S. debt deal
* Asian stocks track Wall Street higher, USD holds near two-week peak
* All eyes on whether Washington can agree on a debt deal
* Some progress seen, but situation still very fluid
SYDNEY, Oct 11 (Reuters) - Asian stocks jumped to three-week highs on Friday, propelled by gains on Wall Street as investors took a chance and cheered perceived progress to avert a possible U.S. default, even as questions remained over whether a deal could be struck.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.7 percent, reaching highs not seen since Sept. 23. Tokyo's Nikkei climbed 1.1 percent, while Australian shares put on 1.8 percent.
The rally in Asia came after U.S. stocks jumped over 2 percent in their biggest one-day gain since Jan. 2 as investors grew confident squabbling U.S. politicians would at the very least avert a possible U.S. debt default next week.
Republicans, who have not passed budget funding, on Thursday offered a plan that would extend the U.S. government's borrowing authority for several weeks, staving off a default that could come as soon as Oct. 17.
While no deal emerged from a meeting at the White House, the two sides said they would continue to talk.
Markets were briefly unsettled after the New York Times reported President Barack Obama had rejected the plan, but Republican Paul Ryan later said Obama had neither accepted or rejected the proposal.
The conflicting news briefly saw U.S. stock index futures fall 0.5 percent, trimming some of Thursday's 2 percent rally. They have since recovered most of that fall.
"We are watching this very closely like everyone else. Some people have been going into cash. I wish we were all focusing on matters of economics and earnings, but we are unfortunately trading on this soap opera," said Michael Cuggino, president and portfolio manager at Permanent Portfolio Funds.
The dollar index, which tracks the greenback's performance against a basket of major currencies, was little changed at 80.518, having hit a two-week high of 80.595 overnight.
Against the yen, the dollar edged up 0.2 percent to a 1-1/2 week high of 98.36. The euro stood at $1.3520, up from this week's trough around $1.3485.
Commodities paused after posting solid gains on Thursday. U.S. crude eased 0.2 percent to $102.80 a barrel, following a 1.4 percent rally, while copper slipped 0.1 percent to $7,137.00 a tonne, after a 0.6 percent rise.
Traders warned the U.S. fiscal crisis was very fluid and any setback in resolving it could see markets quickly turn tail.
"In the interim, fourth-quarter GDP will surely feel the adverse effects from the slowdown in economic activity and the lack of transparency with respect to economic data releases," said Bonnie Baha, senior portfolio manager at DoubleLine Capital.
"As a result, under the current set of circumstances, the prospect of a QE tapering is almost certainly off the table for 2013, she added, referring to the Federal Reserve's bond-buying stimulus programme known as Quantitative Easing.