* Chinese currency falls to 2 1/2-week lows
* EM currencies fall; Indian rupee tumbles to record low
* Graphic: World FX rates in 2018 http://tmsnrt.rs/2egbfVh
By Saikat Chatterjee
LONDON, Sept 12 (Reuters) - The dollar consolidated gains on Wednesday as markets remained cautious about trade talks between the United States and Canada, as protracted weakness in China's currency weighed on sentiment.
With market appetite for taking risk limited -- an Asian equity index is down for the 10th consecutive day and emerging market currencies are falling, led by the Indian rupee INR=D3 -- traders sold currencies perceived to be vulnerable from any escalation in the trade conflict.
The Australian dollar AUD=D3 led major currencies lower, falling 0.3 percent to $0.7102 and not far from a February 2016 low of $0.7085.
The dollar rose nearly one percent in the past two weeks, taking its gains in the past six months to more than six percent Emerging-market currencies were on the receiving end.
"Emerging market selloff seems to be broadening out and monetary and financial conditions have tightened, not boding well for the growth outlook," Morgan Stanley (NYSE:MS) strategists said.
Against a basket of its rivals .DXY , the dollar was steady at 95.20, close to a three-week high of 95.74 reached last week.
Two Canadian sources said overnight Ottawa was ready to offer the United States limited access to the Canadian dairy market as a concession in negotiations to remake the North American Free Trade Agreement Canadian dollar CAD=D3 was little changed at $1.3073 per U.S. dollar after rallying nearly three-fourths of a percent late in the U.S. session.
Still, anxiety over the ongoing trade dispute between China and the United States - the world's two largest economies - kept most investors on edge.
China's offshore yuan CNH=EBS traded 0.1 percent weaker at 6.8857 per dollar after dropping to 6.8888, its lowest in more than two weeks.
An index for emerging-market currencies .MIEM00000CUS was near a 16-month low reached during the day before.
"You can't deny that emerging markets have fallen and that has weighed on sentiment, and that has probably pushed a lot of flows to the U.S. and the dollar," said Bart Wakabayashi, Tokyo branch manager at State Street Bank.