October 3, 2016 / 5:05 AM / a year ago

FOREX-Sterling stumbles but dollar edges up as Deutsche fears recede

* Investors pin hopes on Deutsche negotiating lower US fine

* UK PM May says Brexit process to begin by March 2017

* Friday's U.S. nonfarm payrolls report in focus

TOKYO, Oct 3 (Reuters) - Sterling hit seven-week lows on Monday after Britain set a March deadline to begin its exit from the European Union, while the dollar firmed as fears about Deutshe Bank receded and investors looked to this week's U.S. jobs data.

British Prime Minister Theresa May said that she would trigger the process for the UK to leave the EU by the end of March.

May told the ruling Conservative party's annual conference on Sunday that she was determined to move on with the process and win the "right deal".

Sterling was down 0.4 percent at $1.2941 after it earlier touched $1.2902, its lowest level since Aug. 16.

"The sterling low was hit this morning in very low liquidity, and there's still two years to go before anything happens," said Mitsuo Imaizumi, chief currency strategist at Daiwa Securities in Tokyo.

"There is still plenty of time for investors to buy back the currency."

Risk sentiment benefited from news that Deutsche Bank was attempting to negotiate a much smaller fine with the U.S. Department of Justice, though no formal settlement has been announced yet.

The DOJ fined Germany's largest bank $14 billion earlier in September for what it alleged were sales of toxic mortgage-backed securities.

"I think the Deutsche headline risk is still there. It's not finished yet, with many things yet to be revealed," said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo. "Cross your fingers that this rangebound trade continues."

The euro edged down 0.1 percent to $1.1234 remained well above Friday's low of $1.1153 hit before hopes of a reduced Deutsche settlement pulled it higher.

The dollar index, which tracks the greenback against a basket of six major rivals, inched 0.1 percent higher to 95.541 , off Friday's more than one-week high of 95.960 but above Friday's session low of 95.342.

The dollar was last down slightly at 101.38 yen, but was still doggedly holding above last week's low of 100.085 yen, its weakest since Aug. 26.

"The dollar looks firm against the yen after the 100 yen level was repeatedly tested. However, the upside may be blocked near 102.00 yen," wrote Marc Chandler, global head of currency strategy at Brown Brothers Harriman.

The Bank of Japan's quarterly tankan survey of business sentiment, released early on Monday, showed that Japan's large manufacturers expect the dollar to average 107.92 yen for the fiscal year through March 2017.

Speculators boosted net longs on the U.S. dollar to their highest in six weeks in the week ended Sept. 27, according to Friday's data from the Commodity Futures Trading Commission and Reuters calculations.

The value of the dollar's net long position rose to $9.7 billion from $6.6 billion previously, the data showed.

A key focus for the dollar this week will be the U.S. nonfarm payrolls report on Friday, which could cement or dash expectations that the U.S. Federal Reserve is on track to raise interest rates by the end of this year.

The Australian dollar edged down 0.2 percent to $0.7647 , ahead of a monthly policy decision on Tuesday by the Reserve Bank of Australia (RBA).

Australia's central bank is widely expected to hold its cash rate at a record low of 1.5 percent, a Reuters poll of 57 economists found on Friday, following cuts in August and May. (Reporting by Tokyo markets team; Editing by Shri Navaratnam and Kim Coghill)

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