* Dollar retreats vs euro after jumping late last week
* Yen falls after Bank of Japan rate cut
* Volatile movements expected due to holiday-thinned trade
By Satomi Noguchi
TOKYO, Dec 22 (Reuters) - The dollar fell against the euro on Monday, giving up some of its gains made after the U.S. government offered a lifeline to Detroit carmakers, as investors remained concerned over the deepening economic recession.
The dollar posted its biggest daily gain against the euro in almost two months on Friday, with traders saying the U.S. currency's slump after the Fed's dramatic interest rate cut to near zero earlier in the week was probably overdone.
Dealers said the rescue of General Motors Corp and Chrysler LLC had averted a crisis for now, but uncertainty remained over how the companies' restructuirng plans demanded in return for the rescue would impact the economy already in a deep and long recession.
"The picture that the currency market is painting for the U.S. economy next year is not as hopeful as the one in the stabilising stock markets," said Kengo Suzuki, a currency strategist at Shinko Securities.
"Last week's dollar slump was too much too fast, but the market is pointing that the next trend is in that direction," Suzuki said.
The euro rose 0.9 percent from late New York trade to $1.4037 after falling to as low as $1.3824, according to EBS. It soared as high as $1.4720 on EBS on Thursday.
The dollar rose versus the yen, holding gains made late last week after the Bank of Japan lowered its policy rate down close to zero, mirroring the Fed move.
The U.S. currency rose 0.5 percent to 89.80 yen, off a 13-year low of 87.13 yen touched last week.
The euro climbed 1.2 percent to 125.70 yen, helping the single euro zone currency's gains against the dollar.
Trading volume is expected to be light with many market players leaving for the Christmas holiday and ahead of Japan's market holiday on Tuesday.
The thin market condition was making price movements volatile, traders said.
Data on Monday showed Japan's exports fell by a recod 26.7 percent from a year earlier, as the global economic downturn hammered demand for Japanese goods.
Japanese manufacturers' business sentiment hit a historic low in December and logged the sharpest month-on-month drop on record, a Reuters poll showed.
Those gloomy data reinforced expectations that the Bank of Japan might yet be forced to do more, including returning to zero interest rates and a controversial quantitative easing policy dropped just two years ago, hurting sentiment for the yen, some traders said. (Editing by Kazunori Takada)