FOREX-Dollar earns a respite after sell off, China worries linger

* Dollar/yen edges higher, pulls away from 7-mth low

* Firm euro to cause unease within ECB

* Worries over China's economy linger (Updates prices, adds comments)

By Anirban Nag

LONDON, Aug 25 (Reuters) - The dollar rose broadly on Tuesday, earning a breather from a slide to seven-month lows against the yen as U.S (Other OTC: UBGXF - news) . Treasury yields climbed, although most investors were cautious given worries of a China-led slowdown in global growth.

Those concerns and the scale of a sell off in global stock markets have thrown into doubt whether the Federal Reserve will raise interest rates this year, and pushed up implied volatility in the foreign exchange market - a broad measure of currency swings - to its highest in two years.

The dollar had lost 4 percent against the yen over the two previous trading days. It (Other OTC: ITGL - news) clawed back some of those losses as 10-year U.S. Treasury yields, which at one point had fallen to 1.905 percent on Monday, recovered to trade at 2.02 percent on Tuesday.

The dollar was up 0.8 percent to trade at 119.35 yen, after having tumbled 2.9 percent on Monday for its biggest one-day fall in five years. It pared some of its gains as Japanese stocks fell, with the benchmark Nikkei index closing sharply down by 4 percent. Shanghai shares also fell 8 percent after plunging more than 8 percent on Monday.

"It is all very uncertain for the dollar. All the currencies that were sold off yesterday are rising, but to me it very much looks short lived," said Niels Christensen, FX strategist at Nordea.

"Chinese and Japanese stocks are lower and investors are pricing out chances of a Fed rate hike in September. Going into the month-end, we might continue to see a squeeze in positions and the dollar could be hit."

Apart from receding expectations for a Fed rate rise in September which has seen favourable bets in the dollar being cut, other major and liquid currencies like the euro and the yen have been helped as the market turmoil prompted the unwinding of carry trades.

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 euro eased to $1.1550 on Tuesday having set a seven-month peak of $1.1715 on Monday, with a German IFO survey unlikely to have much impact, traders said.

Heng Koon How, senior FX strategist for private banking and wealth management at Credit Suisse (Other OTC: CDSSF - news) in Singapore, said Japanese and euro zone policymakers were unlikely to tolerate further sharp rises in the euro and yen.

"I would expect verbal intervention to heat up, should euro head higher towards $1.20 or dollar/yen trades on a sustained basis below 115," Heng said.

Japanese Finance Minister Taro Aso on Tuesday warned market players against pushing up the yen too much further, saying that its spike against the dollar overnight was "rough" and undesirable for the economy.

(additional reporting by Masayuki Kitano; Editing by Andrew Heavens)