* Dollar/yen trims losses as Nikkei bounces from sharp losses
* Sagging Chinese shares remain a worry
* Overnight crude oil plunge weigh on Aussie, loonie
* Aussie hits 6-1/2-yr low, fall hastened by soft domestic GDP (Updates throughout)
By Shinichi Saoshiro
TOKYO, Sept 2 (Reuters) - The dollar bounced to cut steep losses versus the yen on Wednesday as Tokyo shares rebounded after sharp losses, dulling demand for the safe-haven Japanese currency for the time being.
The U.S. currency fared better against commodity currencies like the Australian and Canadian dollars, put on the defensive as crude oil prices resumed falling.
The dollar was up 0.7 percent at 120.175 yen JPY= , hoisted up from a low of 119.225 as Tokyo's Nikkei .N225 gained 0.8 percent following the previous day's 3.8 percent tumble.
The greenback was still sharply lower from its overnight high of 121.265 against its Japanese peer, which tends to attract bids in times of financial market turmoil.
The dollar's bounce forced the euro to fall back 0.3 percent to $1.1275 EUR= . The common currency rallied 0.9 percent on Tuesday when it went as high as $1.1332.
"The dollar fell against the yen early in the session, apparently led by foreign players' selling, but it rebounded as shorts were covered when long-term funds came in and shored up the Nikkei," said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.
"But a drop by Shanghai shares has slowed the Nikkei's rise, preventing a further rebound by dollar/yen. For currencies, its about watching stocks lately," Ogino said.
Speculators and investors had also sold low-yielding yen and euro to buy higher-yielding currencies and shares in a "carry trade" strategy that had to be unwound as a worsening outlook for global economy spelled weakness for equities.
As such, the yen and euro have tended to gain when stocks decline. The Japanese currency had reached a seven-month peak of 116.15 yen to the dollar early last week during a China-led rout in global equities.
Shanghai shares fell as much as 4 percent on Wednesday, with sentiment still raw after Tuesday's weak Chinese manufacturing data rekindled growth fears, but later some of the losses were pared.
A report showing softness in U.S. factories added to the gloom over the global economy, sending the S&P 500 .SPX down 2.5 percent and U.S. crude CLc1 tanking 10 percent over the past two sessions.
"Short-term focus will be on the U.S. ADP employment report due later today and the European Central Bank meeting tomorrow. There are hopes that the ECB may ease further in light of recent developments, which could improve risk sentiment," said Shinichiro Kadota, chief Japan FX strategist at Barclays (LONDON:BARC) in Tokyo.
The markets will study the ADP employment report as a rough predictor of the more comprehensive U.S. non-farm payrolls due on Friday.
The dollar index .DXY nudged up 0.1 percent to 95.532 after an overnight loss of 0.6 percent.
Pummelled by the slide in oil and other commodity prices, the Australian dollar was down 0.1 percent at $0.7012 after hitting a 6-1/2-year low of $0.6982 earlier in the session, its decline accelerated by weaker-than-expected domestic GDP data.
The Canadian dollar, another commodity currency buffeted by gyrations in oil prices, pulled back slightly to C$1.3238 per dollar after losing 0.9 percent overnight. The retreat put the loonie closer to an 11-year low of C$1.3353 struck last week. (Editing by Shri Navaratnam and Richard Borsuk)