FOREX-Dollar dips, yuan rebounds as trade talk views twist and turn

* Trade talks headlines turn sentiment sour, then sweet
* Yuan reverses losses to hit 2-wk high offshore, yen gives
up
gain
* Top-level trade talks set to begin in Washington

By Tom Westbrook
SINGAPORE, Oct 10 (Reuters) - The dollar eased against major
currencies on Thursday and the yuan firmed as global markets
remained fixated on Sino-U.S. trade talks in Washington, amid
mixed signals over whether the two sides are making any progress
in resolving the dispute.
Investors turned from downcast to bullish after Bloomberg
reported the United States is weighing a currency pact with
China as part of a partial deal that could see a planned tariff
hike next week being suspended. The dollar dropped more than 0.2% on the euro and the pound,
and was 0.1% weaker against a basket of major currencies .DXY
at 98.995. The euro rose to $1.0987.
Highlighting rapidly shifts in trade sentiment, China's
yuan, CNH= the most sensitive currency to the trade war,
bounced to a two-week high from a month-low in offshore trade.
By midday, it had firmed 0.3% and pulled the trade-exposed
Australian and New Zealand dollars up with it.
The safe-haven Japanese yen jumped after a report in the
South China Morning Post suggesting U.S.-China talks in
Washington were headed for stalemate. But it later gave up its
gains to trade flat at 107.46 JPY= per dollar.
"There are many headlines flying about, some negative, and
some positive," said Stuart Oakley, global head of flow FX at
Nomura in Singapore.
"The USD/CNY fix (by China's central bank) will be key to
watch over the next 4-5 sessions. It's been pegged around 7.0730
for several weeks. A move away from that level will give us a
clear signal as to how the trade negotiations have gone."
The United States is set to hike the tariff rate on $250
billion worth of Chinese goods to 30% from 25% next Tuesday.
Markets have gyrated for weeks as hopes for a de-escalation
or breakthrough in the trade talks have waxed and waned, even as
data pointed to further weakening in global growth.
Safe-haven currencies rallied after the SCMP, citing unnamed
sources familiar with the discussions, said no progress was made
on key issues and China's lead negotiator, Vice Premier Liu He,
planned leaving Washington a day early. But a White House spokesman told CNBC he was unaware of any
plans for Liu to leave early. Then sentiment turned positive, and the yen began falling,
after the Bloomberg report and a New York Times story suggesting
a possible reprieve on U.S. restrictions on Chinese technology
giant Huawei. Liu is scheduled to meet U.S. Trade Representative Robert
Lighthizer and Treasury Secretary Steven Mnuchin later on
Thursday.
"The burden of expectations and back-forth news on trade is
likely to keep market participants anxious and the price action
noisy as the trade talks get underway," Citi analysts said in a
note.
"The risk seems skewed towards a higher USD/CNH on the other
side of talks, in our view."
The Australian dollar lifted from a week low to $0.6747
AUD= and the New Zealand dollar rose to $0.6313.
The pound climbed to $1.2228, though it remained close to a
one-month low amid uncertainty over Britain's exit from the
European Union. Hopes for progress on a key sticking point were
dashed overnight. A slew of British data, including GDP estimates and monthly
services and production figures are due at 0830 GMT.

(Editing by Lincoln Feast; Jacqueline Wong & Kim Coghill)