The dollar steadied versus the euro and yen on Monday at the start of a busy week for U.S. data which should shed light on the extent to which the credit markets turmoil is taking a toll on growth.

Trading was subdued due to a Labor day public holiday in the United States.

High-yielding currencies got a boost as risk aversion eased after the Federal Reserve and U.S. government gave assurances that they would shelter the economy from the subprime mortgage crisis.

Fed Chairman Ben Bernanke repeated late last week that the central bank would take all necessary steps to protect the economy from the market volatility but would not bail out lenders or investors suffering big losses.

U.S. President George W. Bush pledged to help homeowners in danger of defaulting on risky mortgages, but emphasised that the government would not rescue the mortgage lending industry.

The comments reassured investors, spurring a rally on Wall Street on Friday. In foreign exchange, reduced risk aversion made people more willing to hold carry trades where purchases of high-yielders like the New Zealand dollar are funded by cheap borrowing in currencies such as the yen.

We are seeing a delayed response on Friday from Bush's announcement, equity markets are faring a bit better and this is supporting high yielders, said Teis Knuthsen, head of FX research at Danske Markets in Copenhagen.

Non-farm payrolls (on Friday) will be closely watched and it's a big week for interest rates with the Bank of England, the ECB, Sweden's Riksbank and the Bank of Canada all making crucial interest rate decisions, he added.

The dollar was steady at percent at 115.80 yen. It was also flat against the euro at $1.3628.

The dollar's trade-weighted index was flat at 80.775 after having fallen to 80.44 on Friday, the weakest since early August when it hit a 15-year low of 79.957.

CENTRAL BANKS

The Australian dollar was the biggest winner on the day, climbing 0.5 percent to $0.8220 after an array of economic reports reinforced expectations the country's central bank would keep a bias towards raising interest rates.

The euro was 0.1 percent higher at 158.92 yen .

The yen came under pressure from data released on Monday that showed weaker capital spending in the second quarter.

This adds to expectations that any (Japanese) rate hikes will be delayed and we think a rate hike is now off the cards for the rest of 2007, said Geoff Kendrick, currency strategist at Westpac.

U.S. data later this week includes manufacturing activity in August on Tuesday, the Fed's Beige Book summary of the economy's performance on Wednesday and the monthly jobs report on Friday.

The Fed has cut its discount rate for direct lending to banks and has pumped billions of dollars of temporary funds into the banking system to ease a credit crunch stemming from the worries about financial firms' exposure to subprime mortgages.

It is expected to cut rates by at least 25 basis points to 5.0 percent at its mid-September meeting.

George W. Bush Ben Bernanke