(Recasts, updates prices)
By Vivianne Rodrigues
NEW YORK, Sept 6 (Reuters) - The U.S. dollar fell to a one-month low on Thursday as rising mortgage delinquency rates and an ongoing liquidity squeeze stoked fear of slower economic growth ahead of the monthly U.S. employment report.
The euro also got a boost after the European Central Bank left interest rates unchanged at 4.0 percent but said inflation remains a concern, suggesting rate rises may resume in the future.
"The market may be finally beginning to focus on the idea that whatever problems that are here on the market's side, and in the economy and housing, are really predominately a U.S. problem," said Tom Fitzpatrick, global head of currency strategy at Citigroup in New York.
The U.S. dollar index, which measures the greenback against a basket of currencies, touched a one-month low of 80.364 (.DXY: Quote, Profile, Research) and last traded at 80.456. However, the dollar did edge up 0.1 percent to 115.34 yen <JPY=>.
The euro gained 0.3 percent to $1.3689 <EUR=> after ECB President Jean-Claude Trichet said he was continuing to monitor inflation closely.
Trichet said liqudity and credit concerns had increased uncertainty, but also said monetary policy remains accommodative.
While he did not say the ECB was exercising "strong vigilance", his usual code for a rate rise, he did say he would use the phrase again if and when the time comes.
"Trichet confirmed that a rate hike to 4.25 percent is still on the books this year," said David Powell, senior currency strategist at IDEAglobal in New York. "People had thought this could be the end of the ECB rate cycle, but it seems Trichet is saying this is a pause."
The Bank of England also held rates steady at its meeting on Thursday, as did the Bank of Canada, and the Reserve Bank of Australia earlier in the week.
U.S. JOB REPORT, FED IN FOCUS
Markets are now focused on the Federal Reserve, which investors expect to deliver at least a 25-basis-point cut to its 5.25 percent federal funds rate on Sept. 18.
"This week's action by four major central banks raises the chances that the Fed will cut rates," said Michael Woolfolk, senior currency strategist at The Bank of New York Mellon.
"I still think the current market circumstances will trump the Fed's inflation bias and concerns."
Signs of a credit squeeze were again evident on Thursday. A $54.1 billion fall in the size of the commercial paper market suggested firms are still having trouble raising short-term capital.
The Fed flooded the market with $31.25 billion on Thursday in three separate operations designed to increase liquidity, while the ECB injected 42.25 billion euros ($57.4 billion).
Meanwhile, an industry report showed U.S. home loan delinquencies rose in the second quarter while the number of loans entering foreclosure hit a record high. For details, see [ID:nN06331767].
A separate report showing employment in the U.S. services sector hit the lowest level since December 2002 was also a menacing sign for the dollar. [ID:nN06329343]
Alan Ruskin, international strategist at RBS Greenwich Capital, said the data suggests Friday's August employment report may show fewer than 100,000 new non-farm jobs added last month. The consensus forecast in a Reuters poll of analysts was for an increase of 110,000 jobs.
"There's little positive to take away for the dollar, although positioning will remain restrained before the jobs number," Ruskin said.
(Additional reporting by Steven C. Johnson in New York)