* Euro/dollar, dollar index hit 6-week high
* Positive U.S. corporate earnings boost risk demand
* CIT strikes last-minute rescue deal, sources say
* Risk assets overextended, may be due for a correction
(Adds comment, updates prices)
By Gertrude Chavez-Dreyfuss
NEW YORK, July 20 (Reuters) - The dollar weakened broadly on Monday, falling to a six-week low against the euro, as investors plunged back into riskier assets and higher-yielding currencies amid solid U.S. corporate earnings so far for the second quarter.
A further pick-up in risk appetite pushed the euro as high as $1.4249, according to Reuters data, its strongest since early June, which helped push the dollar to a six-week trough against a major currency basket. The yen was also under broad pressure.
Reports of a last-minute rescue of ailing lender CIT Group late on Sunday also boosted risk sentiment.
"It's a risk-preference story. With equities firmer and breaking some semi-interesting levels, the dollar has come under pressure as a result," said John McCarthy, director of foreign exchange at ING Capital Markets in New York.
Assets considered to be higher risk such as the Australian and New Zealand dollars extended gains after rallying last week when investors took mixed U.S. corporate earnings as an optimistic sign the economy was improving.
But volumes were light with Tokyo shut for a local holiday.
In late morning New York trading, the euro rose 0.8 percent to $1.4208. A climb above $1.4337 touched in early June would take the pair to its highest level of the year.
But analysts said the euro looked overextended and seemed unable to get past its highs of the day. It failed to extend gains despite a generally upbeat U.S. economic leading economic indicators report for June.
"At these elevated levels, risk appetite may be a little overstretched," said Omer Esiner, senior market analyst at Travelex Global Business Payments in Washington.
"I could see a pullback in the...euro, Aussie, Kiwi, and sterling. They're having a really impressive run, which leaves them vulnerable to profit-taking if upcoming data or earnings undershoot the market's elevated expectations."
SEEING IS BELIEVING
The ICE Futures' dollar index was down 0.4 percent at 79.015, after falling as low as 78.799, its lowest since early June.
The U.S. currency struggled broadly, pushing sterling and the Australian and New Zealand currencies each up by as much as 1.5 percent, with the New Zealand dollar rising near its highest level of the year.
Against the yen, the dollar rose 0.4 percent to 94.55 yen, while the euro gained 1.2 percent to 134.34 yen.
Growing expectations of an improvement in the U.S. economy have prompted investors to leave the comfort of the U.S. dollar and search for higher yields elsewhere.
The dollar fell last week after Goldman Sachs Group and JPMorgan Chase reported better-than-expected results for the second quarter, and remained under pressure even as Bank of America posted a lower quarterly profit.
But whether positive corporate earnings and the bullish price action can be sustained is still open to debate.
In the past two weeks, analysts have noted that the stock market's rally has occurred despite what seemed to be broad expectations for a pullback and correction to the spring rally. HSBC in a research note pointed out that at least some of the recent gains may have come from a "squeeze" in prices as some traders were positioned for that pullback.
"We're not sure that a lot more people now 'believe' the stock market will continue to rally from here," said HSBC.
U.S. banks reporting this week include American Express, State Street and Bank of New York Mellon.
On Tuesday, Federal Reserve Chairman Ben Bernanke will offer his semi-annual testimony to Congress. Analysts expect Bernanke to issue a fairly upbeat assessment of the economy, and the focus will be on whether he makes any reference to a possible exit strategy from quantitative easing. (Editing by Andrea Ricci)