* Yen falls, Chinese yuan rises on Sino-US trade dealoptimism
* Sterling jumps as investors cut short positions
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh(Adds some context, chart and updates prices)
By Olga Cotaga
LONDON, Sept 13 (Reuters) - The euro rose to a 17-day highagainst the dollar on Friday, heading for its second week ofgains, and German government bond yields climbed higher withinvestors thinking the European Central Bank was donestimulating the ailing euro zone economy.
The central bank cut its deposit interest rate by 10 basispoints to a record low of minus 0.5% on Thursday and said itwould resume bond purchases on Nov. 1, at a rate of 20 billioneuros a month, for an indefinite time.
The bond purchases exceeded many expectations because theyare set to run until "shortly before" the ECB raises interestrates. Markets do not expect rates to rise for nearly a decade,suggesting that purchases could go on for years, possiblythrough most of Christine Lagarde's term leading the bank.
ECB President Mario Draghi also emphasized the importance offiscal stimulus and structural reforms, essentially saying thatonly a combination of both monetary and fiscal stimulus couldrevive European growth.
The ECB "gave the impression to the market that we’re prettymuch done" with monetary policy stimulus, said VasileiosGkionakis, global head of FX strategy at Lombard Odier, addingthat "there's no denial that the ECB delivered on all fronts."
"The main message (from the ECB) is that we've seen thebottom in the euro/dollar," Gkionakis said.
The euro was up 0.3% at $1.1099 after earlierreaching $1.11095, its highest since Aug. 27. The 10-year GermanBund yield rose to a six-week high of negative 0.48%.
The day before, the euro briefly went below $1.10. DeutscheBank had projected the euro would fall below $1.10 and once ithad the bank said it was neutral on the currency.
"We think the risks on the euro are now turning moretwo-sided," George Saravelos, Deutsche's currency strategist,said in a note, adding he was "not willing to turn bullish justyet."
"We believe EUR/USD will remain stuck around 1.10," he said.
The dollar rose overnight against the Japanese yen - afterDonald Trump said he would not rule out an interim trade pactwith China - then gave back some of those gains.
Washington and Beijing are preparing for new talks toresolve their trade war, which has dragged on for more than ayear, roiling financial markets and threatening to push othereconomies into recession. The yen, a safe-haven currency, tendsto rise during times of heightened stress and vice versa.
The dollar was last down 0.1% at 107.99 versus the yenafter surging to a six-weeks high of 108.265.
The Chinese yuan strengthened in the offshore market to afour-week high of 7.0330 against the dollar amid optimism ontrade. Dollar/yuan was last down 0.3% at 7.0752.
The Hong Kong dollar was on course for its biggest weeklygain against the U.S. dollar since July, mainly on broad-baseddollar weakness and speculation that AB InBev and ESR are bothmulling reviving their listings. The Hong Kong dollar rose tosix-week high of 7.8212 against the U.S. dollar, thenslipped back to trade little changed at 7.8279.
Elsewhere, dollar weakness and receding fears of a no-dealBrexit pushed the pound to a seven-week high of $1.2475. Investors trimmed their expectations of no deal afterNorthern Ireland's largest political party said it may agree oncertain European Union rules after Britain exits the EU, eventhough it later denied those comments.
Against the euro, the gains were more constrained, witheuro/sterling last down 0.6% at 89.15 pence.
(Reporting by Olga Cotaga; editing by Andrew Heavens, LarryKing)