FOREX-Dollar tumbles after China share plunge spurs flight to safety

(Updates prices, adds comments)

* Euro helped by trimmed short bets

* Slip in U.S. core capital goods shipments weighs on dollar

* July 28-29 Fed meeting eyed as dollar sags

By Sam Forgione

NEW YORK, July 27 (Reuters) - The U.S. dollar hovered around a nearly two-week low against a basket of major currencies on Monday after the biggest drop in Shanghai shares in eight years drove demand for the safe-haven yen and led traders to trim bets against the euro.

Shanghai stocks tumbled 8.5 percent, dragging European shares down more than 2 percent and the U.S. benchmark S&P 500 index to its lowest in more than two weeks.

Analysts said traders who suffered losses in stock markets probably compensated by closing out short bets against the euro, which in turn helped that currency gain against the greenback. The euro was last up 1.04 percent against the dollar at $1.10960 , near a two-week high of $1.11295.

"When (traders) suffer losses on their stock positions and they choose to sell those stocks, they tend to cover the short euro as well," said Thierry Albert Wizman, global interest rates and currencies strategist at Macquarie Ltd in New York.

The dollar was last down 0.45 percent against the yen at 123.240 yen after hitting a nearly two-week low of 123.010 yen .

Data on Monday showed non-defense capital goods orders, excluding aircraft, rose in June, but shipments of core capital goods, which are used to calculate equipment spending in the government's gross domestic product measurement, slipped 0.1 percent.

"Seeing that maybe tempered some expectations for a September (Fed rate) hike," said Mike Meyer, vice president of EverBank World Markets in St. Louis.

Meyer said traders paid more attention to the shipments figures since they could reflect on second-quarter gross domestic product growth data, which is due on Thursday.

The Fed meeting set for Tuesday and Wednesday was also in focus. The market will watch to see if policymakers provide clues for the timing of a rate "lift-off." Rising expectations that the Fed could begin hiking rates as early as September have been a major factor behind the dollar's gains over the past month.

The greenback rebounded against the Swiss franc and was last up 0.07 percent at 0.96300 franc.

The dollar index, which measures the greenback against a basket of six major currencies, was last down 0.73 percent at 96.538. That was near its session trough of 96.288, which was its lowest since July 14. (Reporting by Sam Forgione; Additional reporting by Anirban Nag in London; Editing by Lisa Von Ahn)