* German data helps cap euro losses
* Sterling falls on weak UK factory orders
* Market wary of Q2 earnings (Recasts, updates prices, adds, detail)
By Nick Olivari
NEW YORK, July 7 (Reuters) - The dollar rose against the euro on Tuesday as risk aversion rose amid uncertainty about the outlook for economic growth and U.S. corporate earnings.
The euro had gained earlier as an unexpected increase in German factory orders gave a boost to investors looking for signs of economic recovery and raised risk tolerance.
But there was still underlying caution ahead of the U.S. corporate earnings season, providing strength to so-called safe-haven currencies such as the dollar and yen.
Sterling remained in negative territory against the dollar and euro as weaker-than-expected UK industrial production data reinforced doubts about an economic recovery.
No major economic data was scheduled for release in the United States on Tuesday, which added to the lack of direction.
"The greenback is mixed against most major currencies as randomness is the norm and news flow paints an inconsistent economic picture," said Andrew Busch, global FX strategist at BMO Capital Markets in Chicago.
Midway through the New York session, the euro was down 0.1 percent at $1.3960, closer to the session low of $1.3904 than the session peak of $1.4050, according to Reuters data.
The dollar index was up 0.2 percent at 80.516.
Sterling dipped to the day's low after data showed UK manufacturing output fell 0.5 percent on the month in May, versus expectations of a 0.2 percent rise.
The wider industrial production measure also fell by 0.6 percent against forecasts of a 0.2 percent gain.
Sterling last traded down 0.8 percent at $1.6151, according to Reuters data, close to the session low of $1.6145.
"The risk is clearly that the 'green shoots' are turning dry," said Michael Klawitter, senior currency strategist at Dresdner Kleinwort in Frankfurt.
The dollar was down 0.2 percent at 95.12 yen. The euro was down 0.4 percent at 132.81 yen.
G8, EARNINGS
China, Russia and Brazil will use this week's Group of Eight leaders summit in Italy to push their view that the world needs to start seeking a new global reserve currency as an alternative to the dollar, officials said on Tuesday. But they also said that such a shift would take time.
A draft of the communique obtained by Reuters made no reference to the issue.
U.S. President Barack Obama and Russian Prime Minister Vladimir Putin did not discuss oil prices or the dollar in Moscow on Tuesday, according to a U.S. official.
Commodity-linked currencies such as the Australian and New Zealand dollar also retraced losses.
The Australian dollar was little changed at $0.7974, recovering from a fall to $0.7935 after the Reserve Bank of Australia left interest rates at a record low 3.0 percent on Tuesday and left the door open to more easing. The New Zealand dollar was last up 0.1 percent at US$0.6362.
Traders are bracing for second-quarter U.S. corporate earnings, which will be released in coming weeks. Analysts said poor results, especially from financial institutions, would likely crank up dollar demand.
"Traders may still be committed to the risk trade at the moment, but if bank earnings disappoint in any way or the S&P breaks crucial levels traders will probably start reducing long positions in (high-risk currencies) and the dollar could be bid more," said Chris Turner, currency strategist at ING in London. (Additional reporting by Tamawa Desai in London; Editing by Kenneth Barry)