(Adds quote, adds details on dollar index)
By Rachel Breitman
NEW YORK, Aug 13 (Reuters) - The euro fell to a one-month low against the dollar on Monday after the European Central Bank pumped cash into the banking system for a third straight day to soothe a market rattled by U.S. subprime mortgage market problems.
The euro came under pressure as investors began to lower their expectations for a rate rise in September from the ECB in the face of turbulent credit markets.
"The market has been expecting the ECB to hike rates, but if all these injections lead the market believe that they won't hike it, and this credit contagion gets worse, that could definitely hurt the euro," said Lawrence Ellenberg, senior vice president at Brown Brothers Harriman in New York.
The ECB injected 47.67 billion euros ($64.93 billion) into euro-zone money markets Monday in a one-day tender to replace Friday's special three-day tender for 61.05 billion euros.
The moves by ECB helped ease short term borrowing costs that jumped higher last week after redemptions were frozen on several European banks' funds associated with the U.S. subprime mortgage sector, including three at France's largest bank, BNP Paribas.
Expectations that the ECB would raise rates to 4.25 percent in September fell to 65 percent, after being fully priced in only a few weeks ago. Analysts said the euro would continue to weaken as a European rate rise becomes less likely.
In late afternoon trading in New York, the euro <EUR=> was down 0.6 percent against U.S. the dollar at $1.3604, a one-month low.
The euro fell 0.72 percent against the yen <JPY=> at 160.97 yen and the greenback fell 0.11 percent against the yen at 118.23 yen, up from an intraday low of 117.66, according to Reuters data.
UNWINDING OF CARRY TRADES BOOSTS DOLLAR
High-yielding currencies such as the British pound and New Zealand dollar also declined against the U.S. dollar, as investors unwound carry trades where low-yielding currencies are borrowed and then sold to buy higher yielding ones.
The pound <GBP=> was down 0.6 percent versus the U.S. dollar to $2.0120 and the New Zealand dollar <NZD=> slipped 0.91 percent to US$0.7391.
"We have a positive outlook for the dollar and the yen," said Geoffrey Yu, a foreign exchange strategist at UBS in London. "With increased risk aversion, there may be a skeptical view of carry trades for some time."
The U.S. dollar also got a lift from higher-than-expected U.S. July retail sales data.
The dollar index (.DXY: Quote, Profile, Research), a measure of the dollar's value against a basket of six major currencies, was up 0.44 percent Monday to a reading of 81.087, rebounding from a 15-year-low reached a week ago at 79.957.
A close above 81.00 would confirm a bullish pattern for the dollar, according to Asbury Research, a Algonquin, Illinois-based investment research firm.
The Federal Reserve's injected $2 billion into money markets on Monday, a big reduction from the $38 billion it pumped into the market on Friday, signifying the possibility that U.S. credit concerns had calmed.
But there was still signs of the U.S. markets' vulnerability to a credit crisis as all three U.S. equities indexes were down for the day, and the futures markets were pricing in a solid chance of an emergency reduction in fed funds rates ahead of the next scheduled meeting in September.
In the United States, rate futures are pricing a 75-percent chance of an emergency intermeeting rate cut by the Federal Open Market Committee this month. Earlier on Monday, an intermeeting August rate cut was fully priced after ending Friday at about a 33-percent chance.