The dollar rose on Friday and world stocks slipped as investors stayed cautious ahead of likely moves by the U.S. Federal Reserve to warn about and possibly prop up a softening economic recovery.
Commodity prices eased as Chinese imports slowed in July.
Speculation has been growing that the U.S. central bank will at its meeting later on Tuesday signal a need for more stimulus to support growth or possibly restart asset purchases, as data since the Fed's last policy-setting meeting in late June has been weak.
U.S. consumer spending is petering out and manufacturing is losing steam, while the unemployment rate is stuck at 9.5 percent.
Mere acknowledgement of economic deceleration might disappoint some investors who have been betting the Fed would make a bigger move, such as buying bonds to pull down market rates, known as quantitative easing.
We're seeing some squaring up of short positions ahead of the Fed, and there is some risk-off sentiment as well as Asian stocks closed lower, prompting a sell-off in high yielders such as the Australian dollar, said Christian Lawrence, currency strategist at RBC Capital Markets.
The euro fell 0.4 percent to $1.3180, sterling slipped 0.5 percent to $1.1.5817 and the Australian dollar was down 0.3 percent at $0.9137.
The dollar advanced 0.3 percent against a basket of currencies <.DXY>.
World stocks measured by MSCI All-Country World Index <.MIWD00000PUS> eased 0.5 percent, and the Thomson Reuters global stock index <.TRXFLDGLPU> also fell 0.5 percent.
The MSCI emerging markets benchmark <.MSCIEF> dropped 0.7 percent, with China's Shanghai Composite Index <.SSEC> down 2.9 percent after data showed Chinese import growth below expectations, pointing to slowing domestic demand and economic activity.
In Europe, the FTSEurofirst 300 <.FTEU3> index lost 0.5 percent, led lower by mining stocks following the Chinese imports data.
Copper fell 1 percent and oil prices were down 0.6 percent to trade just below $81 a barrel, on concerns of less crude purchases by China, the world's second largest energy consumer.
Yields on benchmark 10-year U.S. Treasuries were steady at 2.8271 percent.
Societe Generale said it was bullish on U.S. Treasuries on the possibly of more quantitative easing.
Scaring the market with an early move is a clear drawback, but acting late to fight the deflation risk would be even more costly, it said in a note.
All in all, Treasuries might pull back a touch if the Fed fails to deliver today, but this will prove to be a buying opportunity: the QE debate will come back soon anyway unless the economy or the inflation data quickly turn around.
(Additional reporting by Tamawa Desai; Editing by John Stonestreet)