The yen fell on Monday, giving up some of last week's steep gains, as some risk appetite returned to the market after the Federal Reserve's surprise decision on Friday to cut its discount lending rate.

Markets remained vulnerable to the unwinding of carry trades, however, as investors waited to see if the Fed's emergency rate cut will help settle nerves over the recent turmoil in credit markets.

Some analysts remained skeptical of the currency moves and recovery in global equity markets, saying the Fed's action may not totally ease fears that tighter credit conditions could crimp economic growth.

The yen's fall is just a correction of its big gains last week, said Joe Francomano, vice president of foreign exchange at Erste Bank in New York.

The dollar traded above 115 yen and the euro jumped back above 155 yen, while willingness to take on risk again saw the high-yielding Australian and New Zealand dollars rebound back to US$0.80 and US$0.70, respectively.

I believe what the Fed did last Friday was just a symbolic gesture. Markets are still skeptical of equities and carry trades in general and they will be looking to buy back the yen and sell high-yielding currencies once this euphoria about the Fed wanes, Francomano added.

With little in the way of major new U.S. data, economic fundamentals are again likely to take a back seat to events in credit markets and their implications on monetary policy.

In early trading, the euro was up 0.8 percent against the yen at 155.34 yen, after falling below 150 yen on Friday, and was up 0.1 percent against the dollar at $1.3489.

The dollar rose 0.7 percent to 115.17 yen.

The high-yielding New Zealand dollar, the biggest loser in last week's frenzy to unwind carry trades, gained 0.4 percent against the dollar to US$0.6990. Against the yen, the New Zealand dollar firmed 0.9 percent to 80.45.

The Australian dollar was up 0.7 percent at US$0.8040, and rose 1.6 percent versus the yen to 92.62.

The Fed on Friday cut the discount rate it charges on direct loans to banks by half a percentage point to 5.75 percent and said U.S. economic growth could slow in light of credit market tightening.

The central bank's statement fueled a market view that it could be moving towards lowering its benchmark federal funds rate, which it has held at 5.25 percent since June 2006.

This halted the global selloff in stocks, rally in government bonds and rush to exit foreign exchange carry trades, in which investors borrow the low-yielding yen to fund investments in high-yielding currencies and assets.

A 3 percent jump in Tokyo shares along with gains of around 1 percent in European stocks on Monday helped investors recover some of their appetite for risk.

A slew of banks on Wall Street and in London have dramatically altered their forecasts for monetary policy. They now expect the Fed to cut its key fed funds target rate this year and no longer price in rate hikes from the European Central Bank or the Bank of England.

For the dollar, these will be material developments and reinforce our view the currency will remain under pressure in the medium term, said HSBC Bank in a research note.

So while there is scope for near-term gains in the greenback as repatriation/position adjustment ... continues, longer-term growth and interest rate developments keep us biased against the dollar over time.

(Additional reporting by Simon Falush in London)