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FOREX-Dollar rallies as trade war fears ease

* FX market volatility nears 2018 lows

* Dollar/yen back above near 107 after dropping below 106

* U.S. trade deficit widens to near 9-1/2-year high

* Graphic: World FX rates in 2018 http://tmsnrt.rs/2egbfVh

(Adds comments, U.S. data, FX table, updates prices, changes byline, dateline; previous LONDON) NEW YORK, April 5 (Reuters) - The dollar rose to a two-week high against a currency basket on Thursday, bolstered by a rebound on Wall Street and signs the United States is looking to resolve a trade dispute with China. The U.S. currency also climbed to a three-week peak against the yen and a 10-week high versus the Swiss franc, two safe-haven assets that investors buy in times of market turmoil. "Boosting the dollar is the view that at the end of the day Washington and Beijing might broker a trade deal that doesn't torpedo global commerce or damage the world economy," Joe Manimbo, senior market analyst at Western Union Business Solution in Washington, said. White House economic adviser Larry Kudlow said on Thursday he expects the United States and China to work out their trade differences over time and that trade barriers likely "will come down on both sides." His comments prompted a recovery in the dollar. China, however, has not backed down. The nation's state news agency Xinhua said on Thursday China will win any trade war with the United States. That belief stems from the country's massive consumer market, which has been China's one advantage from U.S. manufacturers' point of view. Beijing on Wednesday imposed tariffs on key U.S. imports including soybeans, planes, cars, beef and chemicals in response to similar measures from the United States. That had spurred a rally in the yen and a sell-off in stocks on Wednesday. "By choosing to hurt China rather than compete with them, others will see this as economic war and the global stakes are actually much higher than they have been in the last 80 years," John Taylor, president and founder of research firm Taylor Global Vision in New York, said. In mid-morning trading, the dollar rose 0.3 percent against a basket of six currencies to 90.41. Earlier, the index hit a two-week high of 90.454. In a broader sign that global currency markets had not been rattled, a basket of currency options of the major currencies ticked towards 2018 lows of 7.8 after a spike in February.

Against the yen, the dollar advanced to a 10-week high of 107.25 yen and was last up 0.4 percent at 107.23. The greenback surged to a 10-week high of 0.9637 Swiss franc , last changing hands at 0.9632, up 0.2 percent. Data on Thursday also showed that the U.S. trade deficit grew to a near 9-1/2-year high in February, with both exports and imports rising to record peaks, but the shortfall with China narrowed sharply.

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Currency bid prices at 10:26AM (1426 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change

Session

Euro/Dollar EUR= $1.2242 $1.2277 -0.29% +2.05% +1.2290 +1.2237 Dollar/Yen JPY= 107.2300 106.7700 +0.43% -4.83% +107.2500 +106.7200 Euro/Yen EURJPY= 131.26 131.09 +0.13% -2.90% +131.4600 +131.0800 Dollar/Swiss CHF= 0.9630 0.9607 +0.24% -1.16% +0.9637 +0.9599 Sterling/Dollar GBP= 1.4017 1.4080 -0.45% +3.74% +1.4097 +1.4002 Dollar/Canadian CAD= 1.2776 1.2768 +0.06% +1.58% +1.2800 +1.2745 Australian/Doll AUD= 0.7686 0.7716 -0.39% -1.47% +0.7726 +0.7679

ar

Euro/Swiss EURCHF= 1.1789 1.1794 -0.04% +0.86% +1.1805 +1.1786 Euro/Sterling EURGBP= 0.8731 0.8718 +0.15% -1.72% +0.8744 +0.8716 NZ NZD= 0.7279 0.7304 -0.34% +2.72% +0.7322 +0.7276

Dollar/Dollar

Dollar/Norway NOK= 7.8322 7.8220 +0.13% -4.57% +7.8389 +7.7925 Euro/Norway EURNOK= 9.5890 9.6064 -0.18% -2.63% +9.6130 +9.5598 Dollar/Sweden SEK= 8.4313 8.4004 +0.09% +2.80% +8.4360 +8.3834 Euro/Sweden EURSEK= 10.3233 10.3136 +0.09% +4.92% +10.3290 +10.2895

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Tom Finn in London)