* Markets brace for possible U.S. govt shutdown
* U.S. data mixed overall, but will not stop Fed fromtightening
* Graphic: World FX rates in 2018 http://tmsnrt.rs/2egbfVh (Updates prices, shutdown news)
NEW YORK, Dec 21 (Reuters) - The dollar gained on Friday asinvestors sought the currency's safety amid persistent equitymarket volatility and a possible U.S. government shutdown.
The dollar had fallen two straight days after the U.S.Federal Reserve on Wednesday flagged fewer interest rate hikesfor the next two years.
The safe-haven Japanese yen gained versus the dollar onoverall market anxiety. On the week, the yen had its best weeklyperformance in percentage terms since February.
U.S. President Donald Trump conceded on Friday there was agood chance the Senate would not approve his demand for $5billion toward funding his border wall project and a governmentshutdown would probably begin at midnight.
The news undermined Wall Street shares, with the S&P 500,already on pace for its worst December since the GreatDepression, hitting its lowest since August 2017. The Dow Jonesindustrial average fell to its weakest since October 2017, whilethe Nasdaq sank to a 15-month low, flirting with bear marketterritory for a second day in a row. .N
"It's not clear at this stage whether President Trump wouldagree to a continuing resolution to temporarily fund thegovernment, or would instead seek a government shutdown, whichwould go into effect at midnight tonight," said NickBennenbroek, currency strategist at Wells Fargo Securities inNew York.
He added that if the shutdown goes into effect, he expectsthe dollar to continue its bounce next week.
U.S. economic reports on Friday were mixed and had minimalimpact on the dollar.
Data showed orders for nondefense capital goods excludingaircraft, a closely watched proxy for business spending plans,dropped 0.6 percent last month after an upwardly revised 0.5percent increase in October.
The U.S. economy also slowed slightly more than previouslyestimated in the third quarter, and momentum appears to havemoderated further in the fourth, according to the CommerceDepartment.
Data also indicated U.S. consumer spending increased solidlyin November, but wage growth remained moderate, suggesting thecurrent pace of consumption was unlikely to besustained.
The mixed data, however, should not prevent the Fed fromraising rates imminently, said Michael Pearce, senior U.S.economist at Capital Economics in New York.
In afternoon trading, the dollar index rose 0.7 percent to96.952 .DXY , posting its biggest daily percentage increase intwo weeks.
The euro, the largest component of the dollar index, fell0.7 percent versus the dollar to $1.1369EUR= .
As liquidity thinned ahead of the Christmas and New Yearholidays, large currency options had an impact on the cashmarket as well. For instance, large options around the $1.15level also pulled the euro lower.
The dollar, meanwhile, was little changed versus the yen to111.27 yen JPY= .
Currency bid prices at 3:04PM (2004 GMT) Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Session Euro/Dollar EUR= $1.1363$1.1444 -0.71% -5.28% +1.1475 +1.1363 Dollar/Yen JPY= 111.3300 111.2800 +0.04% -1.20% +111.4500 +110.9400 Euro/Yen EURJPY= 126.50 127.37 -0.68% -6.41% +127.6900 +126.4900 Dollar/Swiss CHF= 0.9953 0.9878 +0.76% +2.16% +0.9957 +0.9862 Sterling/Dollar GBP= 1.2629 1.2655 -0.21% -6.53% +1.2697 +1.2620 Dollar/Canadian CAD= 1.3593 1.3507 +0.64% +8.08% +1.3596 +1.3492 Australian/Doll AUD= 0.7044 0.7109 -0.91% -9.70% +0.7123 +0.7042 ar Euro/Swiss EURCHF= 1.1314 1.1305 +0.08% -3.21% +1.1324 +1.1292 Euro/Sterling EURGBP= 0.8998 0.9043 -0.50% +1.29% +0.9051 +0.8985 NZ NZD= 0.6707 0.6774 -0.99% -5.35% +0.6790 +0.6707 Dollar/Dollar Dollar/Norway NOK= 8.7751 8.6803 +1.09% +6.92% +8.7795 +8.6475 Euro/Norway EURNOK= 9.9709 9.9450 +0.26% +1.24% +9.9935 +9.9124 Dollar/Sweden SEK= 9.0541 8.9746 +0.18% +10.39% +9.0613 +8.9274 Euro/Sweden EURSEK= 10.2927 10.2743 +0.18% +4.61% +10.3105 +10.2370
(Reporting by Gertrude Chavez-Dreyfuss; editing by JonathanOatis and Richard Chang) ((firstname.lastname@example.org; 646-223-6322; ReutersMessaging: rm://email@example.com))