FOREX-Dollar slips as jobless claims rise; euro falls

* Dollar falls as U.S. jobless claims rise in latest week

* ECB holds rates steady at 4.25 percent

* Trichet highlights downside risk to euro zone growth (Updates prices, adds comment, byline)

By Gertrude Chavez-Dreyfuss

NEW YORK, Aug 7 (Reuters) - The dollar retreated against the yen on Thursday, as investors took profits from its recent gains and U.S. jobless claims rose in the latest week, suggesting the economy's labor market woes are far from over.

The dollar, however, gained against the euro after European Central Bank President Jean-Claude Trichet said he expects economic growth in the euro zone to weaken substantially this year, even as he sees inflation remaining above the bank's target.

Following his remarks, investors unwound bets for ECB interest rates increases this year, limiting the euro's appeal to global investors.

But the dollar's gains versus the euro in the wake of Trichet's statements failed to stem the greenback's losses against other currencies.

"The dollar really fell after the jobless claims which suggests that labor market is still weak. The labor market lags the business cycle and we all know that business was weak, so I'm not surprised that we saw a rise in jobless claims," said Ken Landon, a currency strategist, at JP Morgan Chase in New York.

In early trading, the dollar fell 0.3 percent to 109.36 yen <JPY=>. Against the Swiss franc, the dollar slipped 0.1 percent to 1.0587 francs <CHF=>. The dollar index on the ICE futures exchange edged down to 74.264 .DXY.

Adding to pressures on the dollar was an increase in crude oil prices by 1.5 percent to $120.40 CLc1. Stocks were also lower after the open.

The euro <EUR=> eased to $1.5388, down 0.1 percent after trading higher for most of the session.

In remarks after the ECB held rates steady at 4.25 percent, Trichet said the latest economic data suggested that real growth for mid-2008 will be substantially weaker than in the first quarter. See [ID:nL7650401].

"These are some of the most dovish comments from Trichet I believe we have seen for quite sometime, so the market jumping all over them does not surprise," said Dustin Reid, senior currency strategist at ABN Amro in Chicago.

Figures derived from Eonia rates show the market has wiped out expectations of further ECB rate hikes this year. In contrast, Fed fund futures are currently pricing in three 25 basis point U.S. rate increases over the next 12 months FEDWATCH. (Editing by Theodore d'Afflisio) (gertrude.chavez@thomsonreuters.com; +1 646 223 6322; Reuters Messaging: gertrude.chavez.reuters.com@reuters.net))