* 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
By Olga Cotaga
LONDON, Sept 13 (Reuters) - The euro rocketed to a 17-dayhigh against the dollar on Friday as German government bondyields surged on the back of investors thinking the EuropeanCentral Bank was done stimulating the ailing euro zone economyafter cutting rates on Thursday.
The central bank cut its deposit interest rate by 10 basispoints to a record low of minus 0.5% and said it would restartbond purchases at a rate of 20 billion euros a month from Nov. 1for an indefinite time.
The revived bond purchases exceeded many expectationsbecause they are set to run until "shortly before" the ECBraises interest rates. Given that markets do not expect rates torise for nearly a decade, such a formulation suggests thatpurchases could go on for years, possibly through most ofChristine Lagarde's term leading the bank.
As he announced the monetary stimulus package, ECB PresidentMario Draghi also emphasized on the importance of fiscalstimulus and structural reforms, essentially saying that only acombination of both monetary and fiscal stimulus could reviveEuropean 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 $1.1096 after jumpingearlier to $1.11095, its highest since Aug. 27. The 10-yearGerman Bund yield surged to a six-week high of negative 0.48%.
The day before, the common currency briefly went below$1.10. Deutsche Bank had projected the euro would fall below$1.10 and now that it had, the German bank said it was nowneutral on the common currency.
"We think the risks on the euro are now turning moretwo-sided," said George Saravelos, Deutsche's currencystrategist, in a note, adding he was "not willing to turnbullish just yet."
"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 rounds of talksaimed at curbing their trade war, which has dragged on for morethan a year, roiling financial markets and threatening to pushother economies into recession. The yen, widely considered asafe-haven currency, tends to rise during times of heightenedeconomic or market stress and vice versa.
The greenback was last down 0.1% at 107.99 versus the yenafter surging to a six-weeks high of 108.265.
The Chinese yuan also strengthened in the offshore market toa four-week high of 7.0330 versus the dollar on the back ofSino-U.S. trade optimism. Dollar/yuan was last down0.3% at 7.0752.
"We've managed to scale back our pessimism about U.S.-Chinatrade talks, which is a supportive factor for now," said TakuyaKanda, general manager of research at Gaitame.com ResearchInstitute in Tokyo.
Elsewhere, receding fears of a no-deal Brexit and dollarweakness pushed the pound to a seven-week high of $1.2435on Friday. Investors trimmed their expectations of ano-deal Brexit after Northern Ireland's largest political partysaid it may agree on certain European Union rules after Britainexist the EU, even though it later denied those comments.Against the euro, the gains were more constrained, witheuro/sterling last down 0.5% at 89.25 pence.
(Reporting by Olga Cotaga; Additional reporting by StanleyWhite in Tokyo; Editing by Andrew Heavens)