* Aussie, yuan rise on report deal will end tariffs
* Dollar/yen fall on Trump comments short-lived
* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh
By Hideyuki Sano
TOKYO, March 4 (Reuters) - The Australian dollar and the Chinese yuan inched up on hopes Washington and Beijing were close to a trade deal after a bitter year-long tariff dispute.
Fuelling such expectations was a report from the Wall Street Journal on Sunday that said the United States and China could reach a formal agreement at a summit around March 27 given progress in talks between the two countries.
The Aussie gained as much as 0.57 percent to $0.7118, before giving up some of its gains to $0.7085 following soft business inventories and declines in job advertisements and dwelling approvals.
“The data was seen as pointing to a weak reading in Australian GDP data due on Wednesday, prompted speculators to create new short positions,” said Yukio Ishizuki, senior strategist at Daiwa Securities.
But Ishizuki also said markets had gone too far in pricing in a downturn in the Australian economy.
“Interest rate futures are now pricing in a rate cut this year but the economy could turn out to be stronger than expected given recent strength in commodity prices. I’d bet the Aussie could easily rise to around $0.73-74,” he said.
The Reserve Bank of Australia will hold its policy meeting on Tuesday.
The Chinese yuan ticked up 0.20 percent to 6.7030 to the dollar in offshore trade, edging near its 7-1/2-month high of 6.6737 hit last week.
The yuan has been supported since late last month after Washington delayed its self-imposed March 1 deadline for raising tariffs on $200 billion worth of Chinese imports, citing progress in its trade talks with Beijing.
While the trade optimism pushed the dollar lower against most Asian currencies, it helped erase the greenback’s earlier losses against the safe-haven yen, which followed U.S. President Donald Trump’s criticism about Federal Reserve monetary policy and a strong dollar.
The dollar traded at 111.96 yen, near a 10-week high of 112.08 on Friday. It had dipped to 111.75 yen after Trump’s comments on the Fed..
“We have a gentleman that likes a very strong dollar at the Fed...I want a strong dollar, but I want a dollar that’s great for our country not a dollar that is so strong that it is prohibitive for us to be dealing with other nations,” he told his supporters in a speech.
The positive investor sentiment offset some of the caution that followed soft U.S. data published on Friday.
Factory activity, gauged by the Institute for Supply Management’s (ISM) survey, hit the lowest level since November 2016 while personal incomes fell for the first time in more than three years.
Expectations that the Fed will avoid raising interest rates any time soon have also underpinned risk sentiment.
“This week we have a few central bank meetings, including the European central Bank, Australia and Canada. All of them are likely to take either a dovish or neutral stance. That should support ‘risk-on’ trades,” said Shinichiro Kadota, senior FX & rates strategist at Barclays.
The euro stood little changed at $1.1365, with focus on Thursday’s ECB policy meeting.
Given recent weakness in the euro zone economy, the ECB looks certain to suggest a rate hike this year would be off the table and could signal a re-launch of its offer of long-term loans to banks.
Elsewhere, the British pound found support on receding fears that Britain will leave the European Union without a deal after Prime Minister Theresa May said last week lawmakers would get to vote on a delay to Brexit if they choose not to approve her withdrawal agreement.
The pound rose 0.2 percent to $1.3235, inching towards its near eight-month high of $1.3351 hit last week. (Editing by Sam Holmes and Jacqueline Wong)