FOREX-Dollar holds near 2-1/2-mth high vs yen on trade progress; sterling firm

* U.S., China strike partial trade deal
* EU, Britain to hold intense negotiations on Brexit deal
* Dollar/yen near 2-1/2-month high as risk appetite returns
* Sterling rally pauses as EU summit looms
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Tomo Uetake
SYDNEY, Oct 14 (Reuters) - The dollar held near a
2-1/2-month high against the yen on Monday on signs of progress
in U.S.-China trade talks, while sterling's rally ran out of
steam after touching a 3-month peak on hopes for an orderly
British exit from the European Union.
On Friday, the dollar strengthened against the safe-haven
yen to as high as 108.63 yen JPY= , its highest since August 1,
before U.S. President Donald Trump said the United States and
China had reached a 'Phase 1' trade deal.
It pared those gains after Trump announced the agreement,
covering agriculture, currency and some aspects of intellectual
property protections. In Asian trade on Monday, the dollar inched down to 108.34
yen, while the euro stood at $1.1034 EUR= versus the
greenback, off Friday's three-week high of $1.10625.
With Tokyo's market closed for a public holiday and the
United States also seeing partial market closures for Columbus
Day, trading volumes would likely remain lighter than usual.
Analysts said the further gains in the dollar/yen may be
limited because the partial deal between the world's two largest
economies appeared to lack substance with limited progress on
structural issues such as technology transfers.
The trade deal "looks more symbolic than substantial, and
might be better described as simply an 'interim trade war
truce,'" said Ray Attrill, head of FX strategy at National
Australia Bank.
"This Phase 1 agreement, if inked, does little to
immediately brighten the outlook for global trade and growth.
While it shouldn't prevent the Fed from agreeing to cut rates by
another quarter point on Oct. 30, it doesn't provide a firm
pretext for significant or sustained U.S. dollar depreciation."
The deal represents the biggest step between the United
States and China in a 15-month trade dispute. Friday's
announcement did not include many details and Trump said it
could take up to five weeks to get a pact written. He
acknowledged the agreement could fall apart during that period,
though he expressed confidence that it would not. The British pound surged on Friday to as high as $1.2708
GBP=D4 , its strongest since July 1, and a five-month peak of
86.955 pence per euro EURGBP=D4 , on optimism about orderly
Brexit.
On Monday, cable's rally ran out of steam and was last
traded at $1.2610 GBP= in Asia, 0.28% lower on the day.
The EU agreed on Friday to hold another round of intense
negotiations with London in a bid to break the deadlock and
secure a deal before the Oct. 31 deadline. EU negotiator Michel Barnier and his British counterpart
Stephen Barclay earlier held what both sides called a
"constructive" meeting in Brussels. The British and Irish prime
ministers said on Thursday they had found "a pathway" to a
possible deal, and by Friday some officials were expressing
guarded optimism.
On Sunday, British Prime Minister Boris Johnson told his
cabinet a last-minute deal was still possible as the two sides
pressed on with intensive talks to try to avoid a disorderly
Brexit on Oct. 31. Britain said there would be more talks on Monday, with
Johnson hoping a deal will be agreed in time for EU leaders to
approve it at a summit in Brussels on Thursday and Friday this
week.
But he will still have to convince a deeply divided British
parliament to ratify the agreement, while the European
Commission said "a lot of work remains to be done" in a
statement issued late on Sunday.
"Brexit talks between the UK and the EU will continue today.
With the EU Council meeting to take place on Oct. 17-18, Brexit
headlines will be the main focus for this week," said Daria
Parkhomenko, FX strategist at RBC Capital Markets.

(Editing by Neil Fullick and Jacqueline Wong)