FOREX-Dollar at 2-month highs on funding deal, trade talks

* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Saikat Chatterjee

LONDON, Feb 12 (Reuters) - The U.S. dollar held at a two-month high and the Australian dollar gained on Tuesday as expectations of progress in trade talks between the United (Shenzhen: 000925.SZ - news) States and China and a tentative deal to avoid a U.S. government shutdown lifted sentiment.

U.S. lawmakers reached a deal on border security funding that could help avert another partial shutdown due to start on Saturday (Shenzhen: 002291.SZ - news) , fuelling gains in Asian stocks.

Trade talks began in Beijing this week after an earlier round ended in Washington last week without a deal, and with the top U.S. negotiator saying a lot more work needed to be done.

"The dollar is the market's pet currency at present regardless of whether concerns about the global economy are on the rise or whether (there are) risks in connection with the trade conflict between China and the US as well as the government shutdown," currency strategists at Commerzbank (Xetra: CBK100 - news) said in a note.

Against a basket of its rivals, the dollar was broadly steady at 96.986, after climbing to its highest level since mid-December at 97.117 in the previous session.

Financial markets have been roiled by the trade tensions over the past year, with global business sentiment taking a hit as factory activity and economic growth suffered.

The dollar's rise in recent days has also been triggered by growing caution over the outlook of its major rivals, notably the euro and the British pound.

Weak European data has hurt sentiment towards the single currency. On Tuesday the euro held near a 2-1/2 month low of $1.1267 hit in the previous session.

Sterling was broadly steady at $1.2878 before a statement by Prime Minister Theresa May to lawmakers in parliament.

With (Other OTC: WWTH - news) just weeks to go before Britain leaves the European Union on March 29, investors are growing increasingly worried that a Brexit deal may not be finalised in time. (Reporting by Saikat Chatterjee: Additional reporting by Vatsal Srivastava in Singapore; editing by John Stonestreet)