US dollar in demand

The soggy data gave a fillip to Treasuries, as did comments from New York Federal Reserve bank president William Dudley that there still excessive slack in the economy so any increase in rates should be done cautiously.

Dudley played down the importance of the various interest rate projections of Fed members released last week which some in the market had taken as a signal of a hawkish turn.

That helped yields on two-year paper ease back to 0.553 percent and away from a top of 0.597 hit last week.

Yields on 10-year Treasury notes dipped to 2.56 percent, from 2.59 percent late Friday.

Dudley also said the steady rise in the dollar could complicate the Fed's job, potentially hurting US economic performance and pushing down inflation.

The currency has been on a tear recently thanks to the diverging outlook for US rates and those in Europe and Japan, where policy is set to remain super-easy and might even be loosened further.

Measured against a basket of currencies the dollar had climbed for 10 weeks straight, the longest streak since the index was created in 1971.

On Tuesday, the dollar was taking a breather at 108.77 yen after peaking at a six-year high of 109.46 last week. The euro was hanging on at $1.2849 having been at its lowest since July last year at $1.2814.

The concerns over China and weakness in commodity prices took a heavy toll on the Australian dollar which slid to a seven-month low of $0.8854. China is Australia's single biggest export market and investors often use the currency as a liquid proxy for China plays.

Among the many commodities under fire, gold touched its lowest since January at $1,208.36 an ounce before steadying at $1,214.80. Silver hit $17.30 an ounce, its lowest since June 2010.

Brent crude oil for November delivery edged up 4 cents to $97.01 a barrel, having fallen sharply overnight to be uncomfortably close to its recent trough of $96.21.

Ample supply and slowing economic growth in Europe and China have so far outweighed expectations of a cut in oil output from the Organization of the Petroleum Exporting Countries (OPEC). US crude bounced 10 cents to $90.97 a barrel.

China's response to slowing growth has global effect as indexes tumble	State media campaign aimed at getting investors to buy equities