FOREX-Dollar treads water as U.S.-China trade talks continue; pound slips

By Saqib Iqbal Ahmed

* Top U.S. and Chinese trade negotiators hold phone call, discuss core issues

* Sterling weakens after polls show Conservative lead is narrowing (New throughout, updates rates, adds comments post-U.S. market open; new byline, changes dateline; previous LONDON)

By Saqib Iqbal Ahmed

NEW YORK, Nov 26 (Reuters) - The U.S. dollar was little changed against a basket of currencies on Tuesday as traders looked to the latest developments in the U.S.-China trade talks for direction and the shortened holiday week kept currency moves muted.

Chinese Vice Premier Liu He, U.S. Trade representative Robert Lighthizer and U.S. Treasury Secretary Steven Mnuchin discussed issues related to phase one of a trade agreement and agreed to maintain communication on remaining issues.

Separately, the Global Times, a tabloid run by the ruling Communist Party's official People's Daily, reported on Sunday that China and the United States are "moving closer to agreeing" on a "phase one" trade deal, even as Washington and Beijing had not agreed on specifics or size of rollbacks of tariffs on Chinese goods.

"Does this tell us anything we didn’t know six, seven weeks ago? Hard to say. But I’ll believe when I see it," said Neil Wilson, chief market analyst at Markets.com.

The United States has imposed tariffs on Chinese goods in a 16-month long dispute over trade practices that the U.S. government says are unfair. China has responded in kind with its own tariffs on U.S. goods.

If both sides cannot reach an agreement soon, the next important date to watch is Dec. 15, when Washington is scheduled to impose even more tariffs on Chinese goods.

On Tuesday, data showed the U.S. goods trade deficit fell sharply in October as both exports and imports declined, pointing to a continued reduction in trade flows that has been blamed on the Trump administration' "America First" policy.

The dollar index, which compares the greenback against six other major currencies, was up 0.02% at 98.339.

"Near-term escalation appears to be off the table, for the time being, despite Trump's threats to raise tariffs if there is no agreement," said Marc Chandler, chief market strategist at Bannockburn Global Forex.

"However, the fundamental disagreement is illustrated by Xi arguing for an equal deal while Trump claims that because China already has a large advantage, an agreement must favor the U.S.," he said.

Against the yen, the dollar was up 0.15%. The U.S. currency had jumped to a two-week high against the safe-haven Japanese yen in Asian trading.

Overall, currency trading is slowing before the U.S. Thanksgiving holiday on Thursday, with traders increasingly pricing in tighter trading ranges for major currencies, analysts said.

Sterling was 0.4% lower at $1.2846 on Tuesday after a second poll showed the Conservative Party's lead is narrowing before the British election next month.

Prime Minister Boris Johnson's Conservatives have led the opposition Labour Party, and hopes that a Johnson victory would end more than three years of uncertainty over Brexit have lifted the pound, despite concern about a no-deal exit from the European Union.

(Reporting by Saqib Iqbal Ahmed; Editing by Steve Orlofsky)