TOKYO (Reuters) - Low-yielding yen and euro held firm on Tuesday as nervous investors look to upcoming data from China and the United States to gauge whether they need to further wind back carry trades, bets in risk assets funded by these currencies.
Falls in equity prices overnight curbed risk appetite after Federal Reserve Vice Chairman Stanley Fischer did not rule out the possibility of a rate hike in September, even though global financial markets have been through turmoil in recent weeks.
The euro bounced back to $1.1228, up 0.2 percent from late U.S. levels and extending its recovery from last week's one-week low of $1.1156.
The dollar slipped to 121.06 yen, down 0.1 percent from late U.S. levels maintaining its descent from Friday's high of 121.76.
Speculators often use low-yielding currencies to fund positions in higher-yielding currencies and equities, so a worsening outlook for equity markets tends to boost currencies such as euro and yen.
As a result, the dollar's index against a basket of six major currencies, which rose 1.2 percent last week as risk sentiment somewhat recovered, stepped back to 95.922 from last week's high of 96.324.
U.S. stock futures fell one percent in Asia on Tuesday, extending their on fall on Monday.
With investors gripped by fear the global economy could be tripped by slowdown in China, even rises in U.S. debt yields rise on Monday following Fischer's comments and spike in oil prices did not provide the dollar much of a boost.
The immediate focus is on manufacturing survey from China at 0100 GMT as well as U.S. factory data at 1400 GMT.
The Australian dollar dipped 0.2 percent to $0.7103, edging closer to its 6 1/2-year low of $0.7044 hit late last month, reflecting concerns on the Chinese economy.
Sterling traded at $1.5360, just shy of its strong resistance around $1.5330, its July low, maintaining its soft tone after the Bank of England's inflation report last month doused expectations of an early rate hike.
"The market thinks the Bank of England will raise rates only after the Fed will raise rates...There's a chance that sterling could fall further against the dollar," said Shinichiro Kadota, chief FX strategist at Barclays in Tokyo.
Reporting by Hideyuki Sano; Editing by Eric Meijer