The euro rose for a third straight day against the dollar on Tuesday, as expectations that the U.S. Federal Reserve will raise interest rates next week faded amid a climate of worries over global growth. The latest data showed China's imports tumbled in August, the tenth consecutive drop, adding to concerns about the health of the world's second-biggest economy and the implications for other emerging markets and the rest of the globe. The dollar gained almost 10 percent in the first quarter of the year as investors prepared for a Fed "lift-off" of interest rates. But the currency has since struggled, as jitters over Greece and then China have reduced expectations that the Fed will move at its September meeting next week. "Market sentiment remains extremely fragile, predominantly because of concerns about a China slowdown and emerging markets, and then next week we've got the Fed," said Rabobank senior currency strategist Jane Foley in London. "So the market is trying to come to terms with that and work out whether or not its positions are in the right place." On Tuesday the euro was 0.1 percent higher at $1.1182 EUR=. Sterling was half a percent up at $1.5345 GBP=D4, as traders bought back the currency after a steep sell-off. Against the yen, the dollar was up 0.7 percent at 120.23 JPY=, as numbers showed Japan's economy shrank less than expected in the second quarter but capital expenditure fell more than originally forecast. Japan's Nikkei .N225 stock index fell 2.4 percent, dragged lower as Shanghai stocks .SSEC dropped in the wake of the disappointing Chinese data. "In terms of dollar/yen, it has been led back and forth by equities - particularly the impact of Chinese shares on Japanese stocks," said Koji Fukaya, president of FPG Securities in Tokyo. "The correlation might last a few weeks, depending on what Chinese authorities further do to shore up stocks, macroeconomic data, and performance by U.S. equities. We are not at a full blown financial crisis, so that is preventing many participants from going long outright on the yen," he said.
