* Yen hits one-month high vs euro as China stocks fall
* Euro up vs dollar as investors buy it on dips
* Sterling falls as some BoE members wanted bigger QE
(Updates prices, adds quote, detail)
By Steven C. Johnson
NEW YORK, Aug 19 (Reuters) - The dollar fell against the
yen on Wednesday after China's stock market tumbled more than 4
percent, raising concern about the strength of a global
economic recovery and boosting the Japanese currency's
safe-haven appeal.
But a recovery in U.S. stock prices helped higher-risk
assets and currencies recover losses, and the euro pushed above
$1.42, on track for its biggest daily rise against the dollar
in more than two weeks,
"Negative sentiment hasn't disappeared but it has abated,
with both the S&P <.SPX> and Dow <> paring losses," said
Matthew Strauss, senior currency strategist at RBC Capital
Markets in Toronto. "That gave the market a chance to push the
euro higher."
But with trading desks thinned out by summer holidays,
analysts said moves were exaggerated. Currencies were also
following stock prices in the absence of fresh economic data.
"These are some of the most illiquid market conditions you
will see all year, with probably about 25 percent of normal
market volume, so this has to be put into that context," said
Michael Woolfolk, strategist at Bank of New York-Mellon.
The dollar hit a one-month low against the yen and was last
down 0.9 percent at 93.83 yen <JPY=>. The euro was unchanged at
133.83 yen <EURJPY=>, well above a one-month low of 132.16
yen.
The euro rose 0.9 percent to $1.4261 <EUR=>, off a session
low of $1.4081, according to Reuters data.
The yen typically gains when equities fall because
investors buy it either as a safe-haven or they unwind trades
that were financed by borrowing the currency.
Woolfolk said many global investors, likely including
central banks in Asia, Eastern Europe and Latin America, are
taking profits on recent dollar strength and buying euros and
other currencies at lower levels.
"Their desire is to diversify their large dollar reserves
and they've been doing that," he said.
Writing in The New York Times on Wednesday, billionaire
investor Warren Buffett warned that the "gusher of federal
money" aimed at rescuing the U.S. economy will in the long run
undermine the dollar.
Excess spending in Britain has also hit sterling hard of
late. The currency fell sharply earlier after minutes from the
Bank of England's last meeting showed some board members,
including Governor Mervyn King, wanted an even bigger expansion
in the bank's asset-purchasing program. []
Sterling last traded down 0.1 percent at $1.6540 <GBP=>,
having recovered from a $1.6392 session low. Asset purchases
require the BoE to print money, which some investors fear may
lead to an oversupply of sterling and eventual inflation.
Still, analysts said the market mood was tentative. Strauss
said he expects the yen to remain well bid and the dollar to
resume gains against the euro in the near-term as investors
grow weary of pushing stocks higher.
The Shanghai stock market's plunge, is "setting a very bad
tone indeed for the rest of the global markets," said
independent investor Dennis Gartman, author of The Gartman
Letter.
(Additional reporting by Jessica Mortimer in London; Editing
by Leslie Adler)
