* Euro set to test $1.40; analysts caution profit-taking
* Trichet says to exercise 'strong vigilance' on inflation
* U.S. nonfarm payrolls report on Friday in focus (Adds details, updates prices)
NEW YORK, March 3 (Reuters) - The euro gained against the U.S. dollar to a fresh four-month high on Thursday, edging toward the psychologically important $1.40 level, after European Central Bank President Jean-Claude Trichet cemented expectations of a near-term interest rate rise.
In a press conference after the ECB left its benchmark rate at 1.0 percent, Trichet said the bank will exercise "strong vigilance" over rising inflation, a phrase that in the past signaled a rate rise was only a month away.
"The market was expecting hawkish comments, but I think the opening up of the door to a hike as early as the next meeting is what's really propagated this, so you're seeing the euro appreciate across the board," said Firas Askari, head of FX trading at BMO Capital Markets in Toronto.
"How sustainable this is is really a question mark. He did say he's not expecting a series of rate hikes," he added. "I'm not a long-term buyer of the euro."
The euro climbed as high as $1.3976 on trading platform EBS, its strongest level since early November, after rising above resistance around its 200-week moving average at $1.3958. It last traded at $1.3937, up 0.5 percent on the day. Analysts said the euro is set to remain supported ahead of the ECB's next meeting in early April but they added that the currency is likely to run into strong resistance in the $1.40 area and a rise above could attract fresh selling interest. "I'm very alert right now for some potential profit-taking," said Brian Dolan, chief currency strategist at Forex.com in Bedminster in New Jersey.
Dolan added that Trichet's comments that the ECB would carry on providing unlimited funding at its three-month operations for the next three months also suggests "there's ongoing fragility in the European banking sector."
A rise in interest rates would push up borrowing costs across the 17-country euro zone, increasing the cost of funding for highly indebted countries.
Askari said it seems clear that the concern about inflation in Germany, France, Austria and the Netherlands outweighs any worries in Trichet's mind about Spain, Portugal, Ireland and Greece.
"When you look at the relative size of the economies, it seems that he's making a call on the overall economic value of Europe," Askari said.
FED LAGGING
The strong indication that a rise will come in April put the ECB in pole position to hike well before the U.S. Federal Reserve and even the Bank of England, which analysts had expected to move first.
The euro jumped as high as 114.98 yen on EBS, also the highest since early November. It also rose 0.9 percent to 85.73 pence and was up 1.5 percent at 1.2994 Swiss francs.
The dollar rose 0.7 percent to 82.46 yen, getting a lift after data showed new U.S. claims for unemployment benefits fell last week to their lowest level in more than 2-1/2 years. A separate report showed the U.S. services sector grew at a slightly faster pace in February to another five-year high.
Some traders said the dollar could gain if U.S. nonfarm payrolls data for February, due on Friday, comes in stronger than expected, though the move is unlikely to gain traction as the Fed remains committed to its stimulative monetary policy.
"The bottom line is that two out of the three major central banks will soon start normalizing monetary policy," said Vasileios Gkionakis, macro strategist at Fulcrum Asset Management LLP in London, which oversees $900 million in assets. "With the Fed still firm on keeping rates low for long, all this is likely to keep weighing on the U.S. dollar." (Reporting by Nick Olivari and Wanfeng Zhou; Editing by James Dalgleish)