* Euro falls below $1.49, worst day since Aug. 7
* Wall Street falls amid speculation on end of tax credit
* Dollar index posts best daily gain since late September
* China should increase euro, yen holdings - report (Updates with tax credit news)
By Wanfeng Zhou
NEW YORK, Oct 26 (Reuters) - The U.S. dollar rose broadly on Monday, rebounding from a 14-month low against the euro as falling stock and commodity prices prompted investors to lock in recent gains in other currencies.
Traders were also reluctant to push the euro higher given the huge amount of bearish trades on the dollar, which suggests a near-term rebound in the U.S. currency could be on the horizon.
On Wall Street, stocks fell sharply as financial shares tumbled on concern lawmakers may let a federal home buyer tax credit expire, while oil prices fell more than 2 percent.
"You do have an overall reversal in risk appetite," said Samarjit Shankar, managing director of global FX strategy at BNY Mellon in Boston.
"It's primarily a lot of profit-taking on long risk positions and some hesitation on the part of market participants ahead of the (third-quarter U.S. gross domestic product) number that's going to come out this week," he added.
In late New York trading, the euro traded 0.9 percent lower at $1.4863, on track for its worst day since Aug. 7. The single euro zone currency earlier hit a 14-month high at $1.5064 on electronic trading platform EBS.
It was a turnaround for the dollar, which struggled earlier partly due to a report saying China should increase holdings of euros and yen in its foreign reserves.
The tax credit has become a hot-button issue in the markets and Wall Street sold off after an incorrect media headline said research firm ISI Group had written the tax credit probably would not be extended when it expires Nov. 30.
The research report, however, was similar to news on Friday that Senate Majority Leader Harry Reid wanted to phase out the tax credit over time instead of letting it expire. Reid said on Monday the Senate could vote as soon as Tuesday to extend the tax break.
Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York, said the euro peaked after the Chinese reserves diversification story and that its failure to make new highs triggered selling, which accelerated after stops were hit.
"Today's price action is inflicting technical damage on the euro chart," he said. He added the next level of support for the euro is seen near the $1.4830-to-$1.4840 range and a convincing break of that area would open the way to $1.4675.
SHORT DOLLAR TRADE
The ICE Futures dollar index, a gauge of the greenback's performance against six major currencies, was up 0.7 percent -- its biggest one-day gain since Sept. 24. The index hit a 14-month low last week.
Against the yen, the dollar rose 0.1 percent to 92.18 JPY=>, near a high of 92.29 yen hit earlier on EBS, the highest for the pair in about a month.
Analysts said the heavy short positioning on the dollar has hovered in the background, making investors hesitant to sell more dollars despite the currency's weak fundamentals.
Data on Friday showed currency speculators increased bets against the greenback, with the dollar's net short position rising to $18.65 billion in the week ending Oct. 20 from a $17.99 billion net short the prior week.
Earlier, an opinion piece in China's Financial News, a paper published by the People's Bank of China, said the dollar should remain the principal currency in China's foreign exchange reserves but that the share of euros and yen should increase.
Commodity-linked currencies declined as oil fell to below $79 a barrel on concerns over a sluggish economic recovery.
The U.S. dollar rose 1.2 percent against the Canadian dollar, while the Australian dollar fell 0.7 percent against the greenback and the New Zealand dollar was down 0.9 percent.
Canada's central bank governor Mark Carney on Monday repeated concerns about the adverse impact of a strong currency on the economy.
Monday was a quiet day for economic data and the market focus is likely to center on events later in the week, including a first look at U.S. gross domestic product data for the third quarter and interest rate decisions in Norway and New Zealand.