FOREX-Dollar falls after China 'loose policy' comment

* China central bank: to use market tools to manage credit

* Dollar retreats from a 2-week high vs euro

* Kiwi erases losses made after RBNZ keeps rates low

By Satomi Noguchi

TOKYO, July 30 (Reuters) - The dollar fell against a basket of currencies on Thursday after China's central bank said it would stick to a loose monetary policy to consolidate an economic recovery, easing market worries about the nation's growth.

Chinese stocks .SSEC rose in early Asian trade then trimmed their gains in volatile trade, keeping investors cautious about chasing riskier assets and higher-yielding currencies.

The Chinese central bank's vice governor, Su Ning, was reported as saying it would also use market tools instead of quota-style controls to ensure credit growth was appropriate. [ID:nPEK357846]

His remarks came after Chinese stocks fell by the largest amount in eight months on Wednesday amid worries that China may take steps to tighten money supply and banks could begin to restrict lending.

"Events in the past two days have reaffirmed how much the Chinese economy and Chinese shares could impact global markets," said Hideki Hayashi, a global economist at Mizuho Securities.

Given the fact that this year's rally in Chinese shares was one factor encouraging investors to take risks, volatile moves in them were likely to keep influencing exchange rates, he said. Traders said investors' profit-taking from a recent rally in stocks before taking their summer vacations was another reason behind Wednesday's sharp fall in Chinese stocks.

The dollar could regain ground versus other currencies as the closing of long positions in stocks and commodities is expected to continue for now and help flows back into the greenback, traders said.

Indeed, the dollar's fall was limited on Thursday and it stayed in sight of a two-week high against the euro.

"I personally feel that the market will see further corrective moves before more clues emerge on how the economy will fare after this summer, with the dollar broadly rising and commodities falling," said Kosuke Hanao, head of treasury product sales for HSBC in Tokyo.

The dollar index, a gauge of the greenback's performance against six other major currencies, fell 0.3 percent to 79.428 .DXY, slipping back towards a seven-month low of 78.315 struck on Tuesday.

The euro rose 0.1 percent from late U.S. trade on Wednesday to $1.4055 EUR= after falling earlier in the day.

It slid as low as $1.4007 on trading platform EBS the day before, the lowest since July 15, after concerns about Chinese growth hurt commodity prices and hit U.S. stocks, sparking a rush to the safe-haven greenback.

The yen earlier fell broadly after the Chinese central bank official's remarks but quickly recovered as traders felt uneasy about keeping risky yen-selling positions with Shanghai stocks remaining volatile and moving in and out of positive territory.

The euro was little changed on the day at 133.45 yen EURJPY=R. The dollar dipped 0.1 percent, to 94.95 yen after rising near a three-week high of 95.39 yen hit on Monday.

The New Zealand dollar initially fell after its central bank kept interest rates at a record low 2.5 percent but left the door open to further cuts while warning that a strong currency was adding to the risks to an economic recovery.[ID:nWEL467297]

But the kiwi recovered later to trade at $0.6498 NZD=D4, nearly flat on the day. It had fallen as low as $0.6477 on the Reuters dealing system, after hitting a near 10-month high of $0.6635 hit earlier this week.

The Australian dollar held firm against the dollar and the yen after data showing stronger building approvals kept expectations intact that Australian interest rates could turn up sooner rather than later. The Aussie rose 0.1 percent to $0.8180 AUD=D4. (Additional reporting by Rika Otsuka; Editing by Michael Watson)