* Dollar index heads for first weekly gain in five weeks
* Euro up but struggles near $1.40
* Geithner urges G20 not to use FX for economic advantage (Recasts, updates prices, adds comment, changes byline)
By Steven C. Johnson
NEW YORK, Oct 22 (Reuters) - The dollar was on track Friday to snap a five-week losing streak against major currencies as traders took profits and the euro repeatedly ran into technical resistance above $1.40.
Uncertainty over the outcome of a G20 finance ministers' meeting, where exchange rate policies were on the agenda, also prompted investors to moderate their dollar selling until the gathering in South Korea ends over the weekend.
While traders would not rule out another lurch lower for the U.S. currency, they said extreme bets against the greenback pointed to a correction. The dollar has lost some 7 percent against a basket of major currencies during a five-week swoon.
Though down slightly against the euro and yen on Friday, the dollar index was up 0.4 percent since Monday, aiming for its first weekly gain since mid-September.
"The dollar has fallen quite rapidly over the last month or so, and positions are somewhat extended, and we saw the tide turning a bit this week," said Nick Bennenbroek, currency strategist at Wells Fargo in New York.
Over the medium term, the dollar still looks like it's fighting an uphill battle, traders said. The U.S. Federal Reserve is expected to announce more monetary easing next month, likely through direct purchases of U.S. Treasury debt, while euro zone governments are seen tightening fiscal and monetary policy, making the euro more attractive to global inventors.
Interest rate spreads continued to widen as a result, with U.S. yields falling as yields on German government debt rise.
EURO NEAR PEAK?
But eventually growth differentials may shift in the dollar's favor if Fed policy perks up the economy in early 2011, just as euro zone governments begin to slash spending and raise taxes to get public spending in order.
"Once austerity measures take effect in Europe, the economy may contract relative to the U.S., a headwind for the euro," said Mark McCormick, strategist at Brown Brothers Harriman.
Though the euro is up some 10 percent against the dollar since September, it has failed to hold ground for long on several occasions above $1.40.
On Friday, it was up 0.2 percent at $1.3944, off a session peak of $1.3973. The dollar was down 0.1 percent at 81.22 yen, not far from a 15-year low.
McCormick said the euro's five-day and 20-day moving averages against the dollar are close to converging, with the former likely to cross below the latter next week, a bearish short-term sign.
He said the euro is up about 6 percent on a trade-weighted basis, bad news for big exporters such as Germany.
"It all adds up to us oscillating over the near term between $1.35 and $1.40, at least until we see what sort of quantitative easing the Fed has in store," McCormick said.
John Taylor, chairman and chief investment officer of FX Concepts, expects the euro to peak between $1.43 and $1.45 and says it could sink to parity with the dollar in 2011.
LITTLE EXPECTED FROM G20
Still, some analysts said there's room for more euro gains in the short term, particularly if G20 leaders fail to make any headway on currency disagreements at a meeting South Korea.
U.S. Treasury Secretary Timothy Geithner, in a letter sent to G20 finance leaders and seen by Reuters, urged countries to refrain from using exchange rates for economic advantage and to adopt targets for their current account balances.
But the proposal ran into stiff opposition from Japan, Germany and some emerging countries, and analysts said failure to reach agreement would free traders to keep selling dollars in favor of the euro, emerging market and commodity-linked currencies such as the Australian dollar.
"A new currency accord will be hard to achieve in principle and even harder to push through in practice, over the hurdles of domestic political pragmatism," said Lena Komileva, head of G7 market economics at Tullett Prebon.