NEW YORK ? The dollar fell against the euro but rose against the yen on Friday after US Federal Reserve chief Ben Bernanke vowed to take action if the recovery of the world's biggest economy faltered.

The euro rose to $1.2751 in New York at 2100 GMT from $1.2720 late Thursday.

The US currency gained ground against the Japanese currency, fetching 85.19 yen compared to 84.37.

"Markets were looking for reassurance from Bernanke today, and the Fed chairman did not disappoint. His speech strengthens our conviction that the FOMC is likely to ease policy further in the relatively near future," said Nomura analyst Zach Pandl.

Bernanke said the US central bank would step up its already unprecedented actions to boost expansion if the economic outlook "deteriorated significantly".

He said prospects for a US growth pick up in 2011 appeared to remain even though the government revised second quarter growth sharply lower.

"US Fed chairman Ben Bernanke now appears willing to discuss all the central bank's options for introducing further policy stimulus," said Capital Economics senior analyst Paul Ashworth.

The comments were his strongest signal yet that the Fed could resume massive purchases of longer-term debt if the economy worsened, a move that would add to the Federal Reserve's already bloated balance sheet.

Bernanke spoke just after the government slashed second quarter growth in the world's largest economy to a pace of 1.6 percent, signalling a more pronounced slowdown in the recovery from recession.

Gross domestic product growth in the April-June period fell from 3.7 percent in the first quarter on the back of a massive trade deficit and weak private inventory investment, the Commerce Department said.

Against other key currencies, the dollar rose to 1.0278 Swiss francs from 1.0233 on Thursday while the British pound was down to $1.5517 from $1.5529.