FOREX-Dollar rises versus yen on bets of a U.S. debt deal
* Dollar/yen trades near two-week high
* Markets expect last-minute U.S. debt deal
* Senate aides say agreement near, details still unclear
* USD could see short relief rally on deal-strategist
LONDON, Oct 16 (Reuters) - The dollar rose against the yen on Wednesday after U.S. lawmakers gave renewed assurances a deal to avert a U.S. default was in reach at the end of a chaotic day in Washington. Officials said an agreement to lift the government's $16.7 trillion borrowing limit was near late on Tuesday after two separate legislative efforts in the House were buried by Republican rebellions, fraying market nerves. The assurances helped keep the dollar near a two-week high against the yen and a four-week high against a basket of currencies. "Markets have been relatively benign in the light of what is happening with the U.S.," said Thu Lan Nguyen, currency strategist at Commerzbank. "If markets were expecting the worst case of a default I think the dollar would be trading at an entirely different level." , not far from the Oct. 1 high of 98.73. It was flat against major currencies at 80.508, having hit a peak of 80.703 in the previous session, its highest since Sept 18. The dollar had taken a hit from Fitch Ratings' warning that it could cut the U.S. sovereign rating from AAA, citing the political spat over the debt ceiling. The U.S. currency might, however, rise further against the yen in the near term if a deal to raise the ceiling is actually reached, said Callum Henderson, Singapore-based global head of FX research for Standard Chartered Bank. "I would think that the short-term reaction would be (dollar) positive, that investors would sell the yen, sell other safe havens such as the Swiss franc and buy back dollar short positions that have been put on ahead of such a deal." "Thereafter people would say, well hang on a minute, maybe U.S. growth will be hurt in the fourth quarter by what's been going on for the past few days and weeks, so you may get some degree of reassessment," he added. Against the Swiss franc, the dollar edged up 0.1 percent to 0.9131. The euro eased 0.1 percent to $1.3515. If Congress fails to reach a deal by Thursday, cheques would likely go out on time for a short while for everyone from bondholders to workers who are owed unemployment benefits. But analysts warn that a default on government obligations could quickly follow, potentially causing the U.S. financial sector to freeze up and threatening the global economy. Kathy Lien, managing director at BK Asset Management, said in a note to clients that she did not expect the dollar to drop another 5 or 10 percent even if the Oct. 17 deadline passed without a deal. "If Congress manages to pass a bill to raise the debt ceiling and reopen the government by Monday, it would still be enough time to avoid a default," she said, as the U.S. won't miss its first bond payment exactly on Oct. 17. Until the statutory borrowing limit is actually increased, investors are seen shunning Treasury bills maturing in the latter half of October because of the possibility of a technical default.