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Dollar falls vs yen as US debt talks sputter

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The dollar dropped to session lows against the yen on Tuesday as talks on raising the U.S. debt ceiling floundered, bringing the world's largest economy closer to potentially defaulting on its debt obligations.

The Senate halted discussions on its own plan and is waiting for the Republican-controlled House of Representatives to come up with an alternative proposal before Thursday, when the U.S. Treasury says the government will reach its borrowing limit.

Senator Richard Durbin, the second-ranking Democrat in the Senate, said Senate Republican leader Mitch McConnell would have to wait for some signal on the next steps from House Speaker John Boehner before he takes any further moves.

The dollar fell to session lows against the yen at 98.13 yen following Durbin's comments. Earlier, it hit a two-week high of 98.72 and was last at 98.41, down 0.2 percent.

The dollar also dropped to the day's low versus the euro, which rose to session highs of $1.3531. The euro, however, was still down on the day, falling 0.3 percent to $1.3518.

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