By Joseph Adinolfi, Hiroyuki Kachi and Sara Sjolin, MarketWatch

The dollar slumped against the euro and the yen Tuesday after the U.S. manufacturing sector grew at its slowest pace in more than two years.

The Institute for Supply Management said its manufacturing index dropped to 51.1% in August (http://www.marketwatch.com/story/us-manufacturing-growth-weakest-since-mid-2013-ism-says-2015-09-01) from 52.7% in July.

Earlier, a weak reading on Chinese manufacturing data sent global stocks tumbling, which in turned weighed on the dollar.

Read: U.S. dollar flipped a time-tested investing trend on its head this week (http://www.marketwatch.com/story/us-dollar-flipped-a-time-tested-investing-trend-on-its-head-this-week-2015-08-27)

The dollar shed 1% of its value to trade at Yen120.04.

The ICE Dollar index , a measure of the dollar against a basket of major currencies, dropped 0.2% to 95.60.

"Investors are still keeping their eyes on the stock market," said Kyosuke Suzuki, the head of the foreign-exchange and money-market sales department at Société Générale in Tokyo.

Stocks across Asia closed firmly lower (http://www.marketwatch.com/storyno-meta-for-guid), while European equities (http://www.marketwatch.com/storyno-meta-for-guid) and U.S. stocks (http://www.marketwatch.com/storyno-meta-for-guid)were mired in the red on Tuesday, after lackluster manufacturing data from China (http://www.marketwatch.com/story/china-factory-activity-slips-to-3-year-low-2015-09-01) underscored concerns over growth in the world's second-largest economy.

In other currencies, the resource-related, risk-sensitive Australian dollar gained traction before stabilizing after the country's central bank left its interest rates unchanged, as expected.

The Australian dollar exchanged hands at 70.74 U.S. cents, down from 71.12 U.S. cents on Monday. The Reserve Bank of Australia kept the cash-rate target at 2%, where it has been since May.

The euro was up 0.2% to $1.1245 in recent trade.

The pound shaved off an earlier advance and dropped against the dollar to $1.5340 from $1.5345 after U.K. August manufacturing PMI missed analyst forecasts.

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(END) Dow Jones Newswires

September 01, 2015 10:43 ET (14:43 GMT)