* 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 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. The euro was unchanged at 133.83 yen, well above a one-month low of 132.16 yen.
The euro rose 0.9 percent to $1.4261, 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, 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)