The U.S. dollar held steady on Monday, retaining most of the gains it made late last week when growing worries about the global economy prompted investors to park funds in the world's most liquid currency, while the Australian dollar slid on political uncertainty.

The dollar index, a gauge of the greenback's performance against six major currencies, climbed to a one-month high of 83.304 on Friday. The index was down 0.2 percent at 82.918 in Asian trade, with resistance seen at 83.451, its July 21 high.

The Australian dollar dropped after neither of the major parties in Australia won an overall majority in Saturday's election to form a government, leaving the country facing its first hung parliament in 70 years.

The euro was on the defensive, hovering near a five-week low against the dollar and a seven-week trough against the yen, both hit on Friday when European Central Bank Governing council member Axel Weber said the ECB should extend its loose monetary stance, stoking worries about the euro zone economy.

The market's main focus has shifted back to the euro zone from the U.S. economy's weakness, said a senior trader at a Japanese brokerage. The dollar is supported by safe-haven demand, managing to stay above a 15-year low against the yen.

Speculators trimmed bets against the dollar in the week ending August 17, with the value of the greenback's net short position shrinking to $14 billion from $17.82 billion the previous week, according to Commodity Futures Trading Commission and Reuters data.

Meanwhile, the same data showed on Friday speculators sharply increased bets against the euro and slightly cut their long yen positions.

The euro was little changed on the day at $1.2716, within sight of a five-week trough of $1.2664 struck on trading platform EBS on Friday. Support is seen at $1.2605, a 50 percent retracement of its rise from a four-year low of $1.1876 marked in June to its August peak of $1.3334.

The single European currency slipped 0.3 percent to 108.53 yen, hovering near a seven-week low of 108.25 yen hit on EBS on Friday.

The dollar fell 0.3 percent to 85.35 yen, within striking distance of 84.72 yen hit earlier this month, its lowest since July 1995.

The greenback has been soft against the Japanese currency, partly due to a sharp fall in U.S. treasury yields on the back of persistent fears a U.S. economic recovery is losing its momentum.

The dollar/yen rate has a high correlation with U.S. and Japanese government bond yield spreads, which are now narrowing.

Japanese Prime Minister Naoto Kan and Bank of Japan Governor Masaaki Shirakawa talked about the yen and agreed to work closely in a phone conversation on Monday, but offered few clues on whether further monetary easing was a possibility.

The yen is expected to stay on a gradual rising trend and there is the possibility it will strengthen beyond 84 yen (vs the dollar) as the market is looking at Japanese authorities being too tame on economic policy, said Ayako Sera, market strategist at Sumitomo Trust & Banking.

There is no energy in the market to reverse the yen's strength unless big surprises occur.

At the same time, caution about possible intervention by Japanese authorities to rein in the yen's strength is making speculators hesitant about selling the greenback against the yen, traders said.

The Australian dollar slid as low as $0.8833 in early Pacific trade, a one-month trough, in a knee-jerk reaction to the nation's general election. But the currency soon trimmed losses thanks to some bargain-hunting, rising to $0.8922, down 0.2 percent on the day.

The Aussie received some help after Britain's Sunday Times reported that beverage giant SABMiller is considering buying the beer operation of Australian brewer Foster's Group for about $10.9 billion.

(Additional reporting by Kaori Kaneko; Editing by Joseph Radford)

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