* Mnuchin touts 'a lot of progress' on U.S.-China trade
talks
* Bond yields rise, dollar and yen slip
* Asian traders await Chinese economic data
By Tom Westbrook
SINGAPORE, Sept 10 (Reuters) - The dollar drifted lower on
Tuesday as investor appetite for higher risk currencies found
support on a report of German stimulus plans, diminishing
chances of a no-deal Brexit and hopes of a breakthrough in the
Sino-U.S. trade war.
The mood lifted the Australian dollar AUD=D3 to a six-week
high of $0.6875 and the pound GBP=D3 also hit a six-week high
of $1.2385 as a British law blocking a no-deal exit from the
European Union came into force. The safe-haven yen JPY=EBS touched a five-week low of
107.46 per dollar as risk appetite rose. Moves were modest in
early Asian trade, however, with traders broadly remaining on
the sidelines ahead of a key European Central Bank meeting on
Thursday, at which policymakers are expected to ease monetary
policy.
Investors also await Chinese inflation data due around 0130
GMT, which is expected to show another year-on-year decline in
factory prices, adding to arguments for more central bank
stimulus. Ratings house Fitch on Tuesday cut growth forecasts for
Europe and China citing rising protectionism. Market hopes for a breakthrough rested on confidence
overnight from U.S. Treasury Secretary Steven Mnuchin, who told
Fox television that there had been "a lot of progress" on a
U.S-China trade deal and that the U.S. side was "prepared to
negotiate". Tapas Strickland, a director of economics at National
Australia Bank, said trade remained subdued with few drivers
beyond Mnuchin's comments and the prospect of stimulus in
Germany. However, the absence of any in immediately bad news for
markets has helped sentiment.
"It was largely a case of 'Hakuna Matata' for markets,"
Strickland said, referring to a Swahili phrase meaning "no
worries", made famous by the 1994 Disney film The Lion King.
The remarks pushed U.S. benchmark 10-year Treasuries
US10YT=RR to a three-week high, where they held in early Asian
trade. The euro also rallied to as high as $1.0167 following a
Reuters report that Germany may set up public investment
agencies to boost fiscal stimulus without breaching national
spending rules. Sterling, meanwhile, barely shifted when Britain's
parliament voted, as expected, to stymie Prime Minister Boris
Johnson's bid for an early election, which prompted him to vow
that he would secure a Brexit deal at an EU summit next month.
It sat just below its six-week peak at $1.2344 at 0005 GMT.
"While I am loath to go anywhere near the pound, I like what
I see in the price action," said Chris Weston, head of research
at Melbourne forex brokerage Pepperstone Group.
"If GBP/USD kicks up through $1.2354 again, I would be
looking for longs, with a stop through $1.2234."
The Chinese yuan CNH= trod water in offshore trade to hold
around 7.1140 per dollar ahead of the economic data.