* Traders eye Treasury debt auctions this week
* Activity subdued as markets shut in U.S., UK
By Rika Otsuka
TOKYO, May 25 (Reuters) - The dollar steadied on Monday, holding near a five-month low hit against a basket of currencies last week when concern that U.S. government debt may lose its AAA rating prompted investors to sell the world's reserve currency.
It slipped against the yen but briefly rose against the euro after South Korea's Yonhap news agency reported on Monday that North Korea had conducted a nuclear test.
Trade was slow as investors kept to the sidelines ahead of the U.S. Treasury's two-, five- and seven-year debt auctions this week totalling $101 billion -- an important test of investors' appetite for dollars and dollar assets.
Market players also hesitated to take fresh positions as U.S. financial markets are closed on Monday for the Memorial Day holiday, while British markets are also shut for a bank holiday.
"Few think U.S. sovereign credit ratings will be cut in the near term," said Minoru Shioiri, a senior manager of FX trading at Mitsubishi UFJ Securities.
"But market participants are likely to keep using U.S. rating concerns as an excuse to sell the dollar if the Treasury's auctions fail to attract demand."
The dollar index, a gauge of the greenback's performance against six major currencies, was barely moved at 80.071, near the five-month trough of 79.805 hit on Friday.
The dollar index lost 3.7 percent last week, its steepest weekly fall since the Federal Reserve launched its large-scale buying of Treasuries in late March, which hurt the dollar due to worries the move could cause an effective devaluation.
The dollar came under pressure after Standard & Poor's said on Thursday it could downgrade Britain's triple-A credit rating.
The move sparked broad selling of U.S. stocks and bonds, reflecting anxiety over the U.S. government's mounting indebtedness as it grapples with the worst financial crisis in generations.
The dollar slipped 0.3 percent from late last week to 94.52 yen. It struck a two-month low of 93.85 yen on trading platform EBS on Friday.
The euro was little changed on the day at $1.3994, within striking distance of $1.4051, its highest since early January. It hit the day's low of $1.3975 after the report on a possible North Korean nuclear test.
The dollar index hit a three-year peak in March as investors sought the safety of the dollar during the slide in global stock markets.
Hopes that the worst has passed in the global recession have grown since then, boosting stocks. That has improved investor risk appetite, hurting the dollar while helping the euro rise above $1.40 and sterling to rise near $1.60.
Sterling fell 0.4 percent to $1.5875 as investors locked in profits after it struck a 6-1/2-month peak of $1.5947 on Friday.
The pound initially slid following the S&P's announcement about Britain's debt rating. But it soon reversed course as investors took the view that major industrial nations would likely see increased fiscal spending across the board.
The potential bankruptcy of U.S. auto giant General Motors Corp is expected to return to the spotlight this week.
GM borrowed another $4 billion from the U.S. Treasury on Friday and won a cost-cutting deal from Canadian auto workers as a showdown with bondholders set the stage for a bankruptcy filing by the end of the month.
"As dollar bears dominate the market now, investors are likely to focus on the negative side of the GM issue no matter what the actual outcome is," said Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corp.
The dollar will extend its slide against the yen if developments on GM trigger a stock market sell-off, analyst said.
But the save-haven dollar could rebound against the euro and sterling if GM files for bankruptcy, curbing investors' risk appetite, they said. (Editing by Michael Watson)