* Dollar/yen blips up on U.S.-China phone talk
* British pound supported by hopes of end to hung parliament
* Implied volatilities plunge as traders see more rangetrade
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
By Hideyuki Sano
TOKYO, Nov 26 (Reuters) - A telephone call between top U.S.and Chinese trade negotiators lifted the dollar to a two-weekhigh against the yen while China's yuan edged up on Tuesday,due to optimism that the two sides will soon agree an interimdeal to halt their trade war.
Chinese Vice Premier Liu He, U.S. Trade representativeRobert Lighthizer and U.S. Treasury Secretary Steven Mnuchindiscussed issues related to a "phase one" trade agreement andagreed to maintain communication on remaining issues.
The dollar rose as high as 109.205 yen, its strongestin two weeks, before settling back at 109.01 yen to show a gainof 0.1% from the previous close.
The yuan also rose to 7.240 to the dollar, about0.15% higher than the previous close.
"It wasn't like they agreed to the phase one deal. They justagreed to continue their talk. So some people appeared to havebeen caught in long position a bit too much," said Shingo Sato,director of forex at MUFG Bank.
"Still, the bottom line is, we just had additional supportto back up optimism since last week on the trade deal," he said.
On Monday, China's Global Times, a tabloid run by the rulingCommunist Party's official People's Daily, said the twocountries were very close to a "phase one" trade deal.
"China appears positive to the deal. The dollar could risefurther to around 109.50 if U.S. officials will visit China,"said Yukio Ishizuki, senior strategist at Daiwa Securities.
Last week, the Chinese government invited Lighthizer andMnuchin to Beijing for face-to-face talks, the Wall StreetJournal reported.
"Trading in the next couple of weeks will be all about theU.S.-China deal," said Daiwa's Ishizuki.
The euro softened to $1.1008, near the one-week lowof $1.10035 touched on Monday.
Sterling traded at $1.2894, supported by hopes thatthe ruling Conservatives could win a majority in the Dec. 12election to end a hung parliament.
Against the euro, the British unit stood at 85.365 pence pereuro, near a six-month high of 85.22 touched Monday last week.
The Australian dollar fetched $0.6772, havingtouched a one-month low of $0.6768 overnight.
Despite rising hopes of U.S.-China trade deal, the Aussiehas been pressured by a run of disappointing local economic datathat has led investors to narrow the odds on another rate cutfrom the Reserve Bank of Australia (RBA).
Overall, currency trading is slowing down ahead of U.S.Thanksgiving holiday on Thursday.
Traders are also increasingly pricing in tighter tradingranges for major currencies, based on implied volatilities.
One-month euro/dollar implied volatility has fallen to4.15/4.40%, the lowest in five years, whilethree-month volatility hit a record low of 4.4/4.6%.
The dollar/yen's three-month volatility also stood at4.775/5.025%, the lowest since late April and near itshistorical lows above 4% while three-month volatility on theAustralian dollar hit five-year low of 6.12/6.42%.(Reporting by Hideyuki Sano; Editing by Simon Cameron-Moore andSam Holmes)
