(Recasts; updates prices)
NEW YORK, Aug 27 (Reuters) - The dollar gained against the euro on Monday, but slipped against the yen as investors attempted to minimize exposure to risky assets amid lingering fears of a global credit crisis.
European Central Bank President Jean-Claude Trichet added to weight on the euro on Monday after he said his recent comments on policy on Aug. 2 preceded a period of market volatility. For details, see [ID:nL27131915]
In those comments on monetary policy, he used the phrase "strong vigilance," signaling action on ECB rates was likely.
But that was little reassurance for dealers who had been betting another benchmark interest-rate hike by the ECB would likely boost the euro.
"The market may have taken (Trichet's) comments as slightly less hawkish and we saw the euro dip below $1.3640, but we have to wait and see," said John McCarthy, director of foreign exchange trading at ING Capital Markets. "But it is hard to believe injections of liquidity can be followed by an immediate rate hike."
In recent weeks, central banks worldwide have added liquidity to financial systems in an effort to ease credit problems.
The euro traded 0.2 percent lower at $1.3650 <EUR=>, snapping a three-day advance against the dollar. The euro fell 0.5 percent against the yen to 158.53 yen <EURJPY=>.
The dollar was down around 0.2 percent at roughly 116.13 yen <JPY=> after last week recovering nearly half of its losses from a sharp fall that began in early August from just below 120 yen.
The dollar's decline ended three straight days of gains against the Japanese currency.
Of particular interest to investors will be developments this week regarding potential monetary policy responses to relatively high financial market volatility and toughening lending conditions, including a speech on Friday by Federal Reserve Chairman Ben Bernanke.
Small declines in the three major U.S. stock indexes, which investors have been watching as a gauge of appetite for risk, supported the yen early on Monday and left dealers uncertain whether last week's air of calm in markets had been premature following weeks of volatility caused by rapidly tightening credit markets.
"This is the same price action we have been seeing for some time now, where risk aversion is evident by lower equity prices. We have a stronger yen and a stronger dollar," said Greg Anderson, director of foreign-exchange strategy at ABN AMRO in Chicago.
Throughout the market turmoil of the last month, profitable strategies such as the carry trade, in which investors borrow low-yielding currencies like the yen to buy higher-yielding assets, have been damaged and government debt and money markets have benefited.
This week, investors will be especially focused on Bernanke's speech on Friday to see if he sheds light on whether market developments require additional monetary policy responses.
After the Federal Reserve entered the fray to defuse the crisis by slashing the lending rate to commercial banks on Aug. 17 and promising to do more if needed, some confidence in the financial system cautiously returned.
But analysts said it is still far too early to say the credit storm has passed, especially if the yen continues to strengthen and U.S. stock markets are weak.
"I think risk aversion will remain a cloud over the market for the foreseeable future and dealers have little choice but to keep an eye out for the next shoe to drop," said Jay Meisler, principal of online forum Global-view.com.
Elswehere, the Australian dollar was up for a fourth straight session against the dollar with a 0.4 percent gain to $0.8301 <AUD=> on Monday. The New Zealand dollar was down 0.3 percent at $0.7191 <NZD=>, snapping three days of gains. (Additional reporting by Vivianne Rodrigues)