* Yen, euro hover close to 7-month highs vs dollar
* Focus again on how Chinese stocks will fare
* Sept Fed rate hike expectations fade
* Loonie hits 11-year low as oil prices tumble
* Aussie given breather as dollar sinks, moves up from
6-year low
By Shinichi Saoshiro
TOKYO, Aug 25 (Reuters) - The yen and euro hovered in reach
of seven-month highs against the dollar on early on Tuesday as
wide-spread risk aversion triggered by a meltdown in Chinese
equities dogged the U.S. dollar.
The dollar tumbled as the recent turmoil in global financial
markets and its potentially nasty consequences for the U.S.
economy whittled down bets that the Federal Reserve will hike
interest rates in September.
Barclays (LONDON:BARC), for example, pushed back their call for a Fed rate
hike from September to March 2016.
The U.S. currency has also come under pressure from market
turmoil prompted unwinding of carry trades funded in the
low-yielding euro and yen.
In times of financial stress, the euro and yen are bought
back as investors unwind positions in trades that entail higher
risk but also higher potential return.
The dollar stood little changed at 118.475 yen JPY= ,
having touched a seven-month trough of 116.15 yen overnight
after sliding from an intraday high of 122.12.
The euro was down 0.2 percent at $1.1529 EUR= after
reaching its seven-month peak of $1.1715, having shot up
overnight from a low of $1.1370.
"We may have to start using a different term to describe the
current situation in the markets after dubbing it a
'correction,' for a while," said Bart Wakabayashi, head of forex
at State Street in Tokyo.
"Correction" is a market term describing sharp, short-term
declines in currencies and assets.
"There are still two-way flows, with demand for buying the
dollar on dips. Some may see the beginnings of a Lehman
crisis-like situation. I don't think sentiment is that bad, but
the next few days could determine how it pans out," Wakabayashi
said.
The dollar was little changed at 93.487 .DXY after
dropping 1.8 percent on Monday.
Focus will once again centre on how Chinese stocks, the
epicentre of ongoing financial market tremors, will perform
later in the session after Shanghai shares .SSEC dove 9
percent on Monday sending European bourses and Wall Street
tumbling.
The dollar fared better against its Canadian counterpart, a
commodity currency under heavy pressure amid plummeting oil
prices.
The Canadian dollar retreated to an 11-year low against the
dollar with crude oil prices sliding on fears that potentially
slower Chinese growth would depress global demand for the
commodity - a key export for Canada.
The Canadian dollar was stuck near C$1.3292 CAD=D4 to the
greenback, its lowest level since 2004.
Oil-exporting Norway's crown suffered a similar fate with
the euro rising to an eight-month high of 9.552 Norwegian crowns
EURNOK=D4 . The common currency has gained more than six
percent versus the crown so far this month.
The Australian dollar, often used for China proxy trades,
won some breathing space after dropping to a six-year low
against the dollar as the greenback came under fire on other
fronts.
The Aussie was up 0.3 percent at $0.7177 AUD=D4 , off the
six-year trough of $0.7044 plumbed on Monday.