FOREX-Yen rises, yuan drops on report of trade-talks stalemate

* No progress at deputy-level trade talks -SCMP
* Yen, franc and euro rise
* Yuan drops to one-month low

By Tom Westbrook
SINGAPORE, Oct 10 (Reuters) - The yen rose and the yuan fell
on Thursday, after a news report said deputy-level trade talks
between Chinese and U.S. officials in Washington had failed to
make much headway, sending investors scurrying for safety.
The South China Morning Post, 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. The safe-havens of the yen JPY= and Swiss franc CHF=
each rose as much as 0.3% though some of the gains were soon
retraced after CNBC said the White House was unaware of any
plans by the Chinese delegation to leave early. The yen last stood at 107.35 per dollar and the franc at
0.9936 per dollar. The euro EUR= nudged higher to $1.0988.
China's yuan dropped 0.4% to hit five-week low in offshore
trade, before it too recovered.
The trade-sensitive Australian AUD= and New Zealand NZD=
dollars hit week lows before turning flat. Against a basket of
currencies the dollar .DXY fell 0.1% to 99.012.
The moves offered a preview of what to expect if the talks
achieve little or nothing, said Joe Capurso, senior currency
strategist at the Commonwealth Bank of Australia in Sydney.
"We don't see any easy route to an agreement so we can see
this going on for quite some time," he said.
Markets have for weeks gyrated as the likelihood of a
breakthrough at the talks has waxed and waned while signs of the
toll that the Sino-U.S. trade dispute is taking on the global
economy have growth in strength and number.
Optimism that some sort of partial agreement between the
parties could be reached had rallied risk assets overnight,
before the SCMP report quickly unwound most of the hopes.
"The markets still seem to be travelling with a glimmer of
optimism," said Ray Attrill, head of FX strategy at National
Australia Bank, with one possibility a deal that staves off U.S.
tariff rises in return for agricultural purchases by China.
"But as things stand that looks like a little bit naively
optimistic that that was going to be the result of this. We're
back to saying that chances are no trade deal."
Tensions had flared leading in to the deputy-level
discussions after U.S. imposed visa restrictions on Chinese
officials and blacklisted some Chinese tech firms it believes
are implicated in the poor treatment of Muslim minorities.
Surprised and upset by the blacklisting, China lowered
expectations for progress from the talks, Chinese government
officials told Reuters. The SCMP report cited a source saying the talks had so far
skirted some of the thorniest issues, including technology
transfers and state subsidies in China.
Liu, who is scheduled to meet U.S. Trade Representative
Robert Lighthizer and Treasury Secretary Steven Mnuchin later on
Thursday, no longer plans to remain in the U.S. capital for
meetings on Friday, the paper said.
The Chinese yuan CNH= fell as far as 7.1677 per dollar,
its weakest since Sept. 4, before recovering in offshore trade.
The Australian dollar AUD=D3 and New Zealand dollar
NZD=D3 each fell 0.1% to touch one-week lows, but then
steadied with the Aussie last buying $0.6717 and the kiwi
$0.6287.
The pound was flat after a rollercoaster overnight session
where it leapt on reports of a breakthrough on the Irish
backstop and then gave up the gains as hopes of progress on a
key sticking point for a Brexit deal were dashed. It steadied at $1.2214 per pound, not far above a one-month
low.