RPT-FOREX-Dollar inches up vs euro, but credit worries weigh

* Market watches oil for dollar direction

* Renewed credit worries weigh on dollar

* Weak Asian stocks give slight boost to yen vs Aussie, kiwi

By Chikako Mogi

TOKYO, July 8 (Reuters) - The dollar inched up against the euro on Tuesday, supported by a drop in oil prices overnight, but renewed credit worries limited its gains.

Credit concerns resurfaced on Monday after a Lehman Brothers report said a pending accounting change could force Fannie Mae (FNM.N) and Freddie Mac (FRE.N), the two largest U.S. mortgage funders, to raise a combined $75 billion in capital at a difficult time. [ID:nN07435475]

Worries about the possibility of more writedowns on mortgage-related assets prompted players to trim the dollar's gains made after oil fell over $4 a barrel on Monday on profit taking and signs that Iran would be more flexible in negotiations over its nuclear programme.

Oil hit a record $145.85 last week CLc1 and traded near $142 a barrel on Tuesday, picking up a little from Monday's close.

The dollar also failed to take advantage of an unexpected fall in euro zone investor morale to a three-year low in July.

"Despite a fall in oil prices, support for the dollar was short-lived, suggesting the market focus is moving back to credit issues as worries about funding grow before the summer break, when liquidity tends to shrink," said a senior dealer at a Japanese trading house.

The dollar eased 0.1 percent to 107.07 yen JPY=, off a session low of 106.93 yen, after see-sawing in a one-yen range between 106.66 yen and 107.75 yen on Monday. Traders expect the pair to move within these ranges throughout the day.

The euro eased 0.2 percent to $1.5695 after falling to a low of $1.5679, off a high of $1.5735 earlier in the day.

The Nikkei fell 1.8 percent .N225, a sign of risk aversion that gave slight support to the yen against the euro and high-yielding currencies such as the Australian and New Zealand dollar. The euro was down 0.2 percent at 168.12 yen EURJPY=.

Worries that financial institutions may need more writedowns on subprime and other mortgage-related assets were likely to hit the euro as European financial institutions have a big exposure to those products, traders said.

Hideki Amikura, deputy general manager at Nomura Trust and Banking, said the dollar's resilience despite the dire capital situation of Fannie Mae and Freddie Mac could reflect market hopes for a government bail-out.

"Despite the seriousness of the issue, the market remains calm, suggesting there may be expectations of the use of public funding to support these institutions," he said, adding that the dollar was likely to stay in a 106-108 yen range this month.