By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) - The dollar rebounded on Monday as traders trimmed bets against the currency on speculation that inflation may prevent aggressive cuts in interest rates.

Worries have eased somewhat about the health of the U.S. economy as the shock of Friday's jobs report faded. The report showed a paltry 18,000 jobs created in December and bolstered expectations of a half percentage point cut in interest rates to 3.75 percent this month, which pushed the dollar lower on Friday.

Investors shifted their attention to inflation concerns and speculation the U.S. administration could use a range of measures, possibly including tax cuts, to help stave off a recession.

"Overall, we still have concerns about inflation and inflation expectations," said Ron Simpson, director of currency research at Action Economics in Tampa, Florida.

"So for the near term at least, until we see signs of further weakness in U.S. data later in the week, I think some market participants are toning down bets for a 50 basis point cut this month and that's dollar-supportive," he added.

In midday New York Trading, the dollar index was up 0.4 percent on the day at 76.174 after falling as low as 75.429 on Friday.

The dollar briefly pared gains against the yen to as low as 108.51 yen after U.S. equities turned negative after the Pentagon said on Monday Iranian Revolutionary Guard boats harassed U.S. Navy ships in the Strait of Hormuz.

The dollar last traded near 109.09 yen.