LONDON (Reuters) - The euro strengthened against the dollar Monday after the head of the European Central Bank said the euro zone was on track for recovery and gave no signal that interest rates were about to change.

With U.S. markets closed for the Presidents Day holiday, investors focused on ECB President Jean-Claude Trichet's testimony to a European Parliament commission.

The dollar held most of the gains it made Friday during the European morning but slipped as Trichet spoke.

"Anything that signals stability in the euro zone economy is positive for the euro because that would lead to wider interest rate differentials with the U.S.," Mark McFarland, currency strategist at UBS in London, told Reuters.

"The market had speculated Trichet might indicate lower interest rates to stem the euro strength but that hasn't come out yet and people are bidding up the euro as a result."

The euro traded last at $1.2787. On Friday it rose to around $1.2895, a shade below January's record high, then fell to around $1.2720.

Gold traders took their cue from the dollar as the precious metal pared sharp losses to trade at $411.70 an ounce after trading below $410 early in the morning.

"Gold has lagged behind what many analysts had expected or hoped given the prevailing dollar weakness," Ross Norman of TheBullionDesk.com told Reuters. "Gold has seen some liquidation, from one fund in particular, and I suspect that is still weighing on the market."

"Were it not for that we might have expected gold to be $10 or even $15 higher than it currently is," Norman said, adding that he saw support at $405 with resistance at $415 and $425 beyond that.

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U.S. Treasurys were little changed Monday with the U.S. markets closed for the Presidents Day holiday.

Brent crude oil prices dipped, with the market expected to be quiet owing to the U.S. holiday. April futures were down seven cents a barrel at $30.50.

European shares edged higher but fears Vodafone could enter a bidding war for AT&T Wireless weighed on the market.

In Tokyo, the Nikkei stock index ended flat as the strong yen put investors off high-tech shares. Cosmetics and textiles maker Kanebo fell nearly 15 percent after it quit talks on selling its cosmetics division.

The Nikkei closed down 0.08 percent and the broader TOPIX index rose 0.38 percent.