* Dollar index steady after pulling back from 13-1/2-mth high
* Amid rise in trade optimism, Aug. 21-22 US-China talks in focus
* Euro holds gains after bouncing on slight ebb in Turkish woes
By Shinichi Saoshiro
TOKYO, Aug 20 (Reuters) - The dollar sagged on Monday as investor demand for the safe-haven currency receded on optimism over a reduction in U.S.-China trade tensions, with the focus on discussions between the two countries due this week.
The dollar index against a basket of six major currencies was little changed at 96.126 after losing 0.55 percent on Friday.
Escalating trade tensions between the United States and its trading partners, in addition to a plunge in the Turkish lira, has taken a heavy toll on emerging market currencies.
These strains pushed the dollar index to 96.984 last Wednesday, its highest since June 2017.
But the dollar’s advance halted ahead of lower-level trade talks between Chinese and U.S. officials in Washington scheduled for Tuesday and Wednesday.
Receding fears over the Turkish lira’s late plunge on Friday reduced risk aversion in the broader markets, lifting the euro.
“The U.S.-China negotiations...will not be between high level officials and are therefore unlikely to produce immediate results. However, the markets will be hoping that the talks pave the way for negotiations at a higher level,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.
“As for the lira, the currency could cause less of a buzz as Turkey is headed for a long holiday, and with credit downgrades done swiftly and now out of the way.”
The Turkish financial markets will be closed for national holidays August 21-24.
Standard & Poor’s cut Turkey’s sovereign credit rating by one notch to B+ from BB- on Friday, sending it deeper into “junk” territory, citing extreme lira volatility and forecasting a recession next year.
The Turkish lira had snapped a three-day rebound On Friday, sliding more than 5 percent against the dollar on fears the United States would impose more economic sanctions unless Turkey handed over detained American pastor Andrew Brunson.
The euro, which had slid to a 13-month low early last week amid concerns that the Turkish crisis could hurt European banks, managed to bounce on Friday, taking the lira’s retreat in stride.
The single currency rose 0.55 percent on Friday and last stood little changed at $1.1436.
The offshore Chinese yuan was effectively flat at 6.838 per dollar after gaining about 0.4 percent on Friday, when it pulled further away from a 19-month low of 6.9585 brushed on Wednesday.
The dollar was unchanged at 110.51 yen after shedding 0.35 percent on Friday. (Reporting by Shinichi Saoshiro Editing by Eric Meijer)