* Dollar hits 11-week low vs yen, eases against Swiss franc
* China selloff hits Aussie, other commodity-linked currencies
* Yuan hits weakest offshore since Sept 2011 (New throughout after start of European trade)
LONDON, Jan 4 (Reuters) - The dollar sank to an 11-week low against the yen on Monday, hit by a renewed stock market selloff in China that sent currency traders running for the traditional security of the Japanese currency and the Swiss franc.
Even if a majority of the biggest bank and fund traders expect more strength for the greenback this year, doubts about that have been writ large in a month when it fell almost 5 percent against the euro and almost 3 against the yen.
Another 6-7 percent slide in Shanghai shares was the trigger on Monday, suggesting again that the global economy may struggle to handle many more rises in U.S. interest rates this year - likely to be the central driver for any further dollar rally.
China’s yuan currency hit its lowest in more than 4 years in both onshore and offshore trade.
“All about China really,” said the head of foreign exchange at one large London brokerage, asking not to be named.
“Volumes are still not that high but it has been a very interesting start this morning. The weakening of the yuan is getting a lot of attention.”
The Swiss franc and yen both rose around 1 percent against the dollar, to 118.995 yen and 0.9941 francs, respectively.
The world’s biggest trading bank Citi recommended selling the yen overnight with a two-week perspective before swiftly recommending clients take profit thanks to the scale of the move against the dollar. The bank remained broadly downbeat on the dollar’s prospects ahead of ISM sentiment data later in the day.
“While we doubt that a lasting shift in trend towards weaker data will be seen, there are some immediate risks,” strategist Josh O’Byrne said in a morning note to clients.
“Given recent disappointment from regional surveys, there is some risk for dollar losses associated with today’s ISM report.”
Tension in the Middle East was also playing a role after Saudi Arabia on Sunday severed ties with Iran.
Data showed China’s factory activity shrank for the tenth straight month in December, hitting shares across Asia.
The Australian, Canadian and New Zealand dollars, which all tend to be dependent on growth and the buoyancy of commodity prices, were all sharply lower.
Still, battered crude oil prices rebounded on Monday as the Middle East tensions stoked supply concerns. Some observers saw this ultimately favouring the dollar.
“Instability in the Middle East might lead to the yen being bought against the dollar, but that might be temporary as higher oil prices would support the economy of the United States, a major oil exporter, in the longer term,” said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo. (Additional reporting by Shinichi Saoshiro in Tokyo; Editing by Tom Heneghan)
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