* German flash PMI worse than expected in Sept
* Yen undermined by hopes for U.S.-China trade talks
* China's yuan, Aussie, make some gains
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
By Tommy Wilkes
LONDON, Sept 23 (Reuters) - The euro fell on Monday afterGerman flash purchasing managers' index survey data forSeptember was weaker than expected, raising more fears about thehealth of the economy.
The single currency, trading around $1.10 before the numberswere released, dropped 0.4% to as weak as $1.0972, itsweakest since Sept. 12.
The survey showed that the German private sector activityshrank for the first time in 6-1/2 years in September as amanufacturing recession deepened unexpectedly and growth in theservice sector lost momentum.
The dollar was boosted by the euro's decline, and its index- which measures the greenback against a basket of currencies -was last up 0.3% at 98.776.
Increasing talk of fiscal stimulus in the euro zone hasraised bond yields in the region, although not all analysts seemuch of a boost for the single currency in the context ofconcerns about global trade and slowdown fears.
"We see little upside scope for EUR/USD here," MUFG analystssaid in a note.
Elsewhere, foreign exchange markets were mostly quiet,though there were some signs of risk appetite as Japan's yenweakened against higher-yielding FX after talks in Washingtonbetween U.S. and Chinese trade deputies were described as"productive".
Volumes in Asia were dampened by a public holiday in Japan.
A U.S.-China trade breakthrough had seemed unlikely afterPresident Donald Trump told reporters on Friday he was "notlooking" for a partial deal, and Chinese officials thencancelled goodwill visits to U.S. farmers.
But both sides later published positive statements, with theU.S. Trade Representative's office describing the talks as"productive" and China's Commerce Ministry calling them"constructive." October's high-level talks remain on track.
The yen was last down 0.2% at 107.75 yen per dollar.
China's yuan added 0.1% to 7.112 yuan in offshore markets.
The Australian dollar rose 0.1% to $0.6772, whileagainst the yen it rallied 0.4% and was on track forits best day since Sept. 12.
Despite the more positive tone in forex markets on Monday,investors remain nervous about the geopolitical outlook, andequity markets fell in early trading.
"I think there's still a lot of nervousness around," saidShane Oliver, chief economist at AMP Capital, citing Middle Easttensions and the U.S-China trade dispute as drivers.
"These things have a habit of escalating and de-escalatingand then escalating again...it is a bit finely balanced at themoment," he said.
Sterling slipped slightly to $1.2459.(Additional reporting by Tom Westbrook in Singapore; Editing byAngus MacSwan)