* Geithner calls for G20 not to block currency appreciation
* Also calls for 4 pct cap on BOP imbalances
* Doubts remain on coordinated G20 action on FX
By Hideyuki Sano
TOKYO, Oct 22 (Reuters) - The dollar fell on Friday after U.S. Treasury Secretary Tim Geithner urged the Group of 20 nations not to weaken their currencies or keep them undervalued, in his push for a coordinated move to fix global imbalances.
"Geithner appeared to be more aggressive (about global economic rebalancing), leading to the dollar's weakness," said a trader at a Japanese bank.
Some in the market saw his comments as suggesting a limited effort to move to immediately prop up the dollar.
Geithner also said emerging economies with undervalued currencies and solid reserves must allow their currencies to adjust in line with fundamentals, while a G20 source told Reuters he also called for a 4 percent cap on current account imbalances.
The euro gained about 0.3 percent while the Australian dollar rose 0.5 percent after Geithner made his proposal in a letter to G20 finance chiefs ahead of a meeting in South Korea later the day.
The U.S. proposals, including a plan to set a numerical balance of payment target, have so far run into stiff resistance from many other G20 partners.
A senior G20 official, however, put the chances for an agreement on current account targeting at even. "It looks like the markets' interpretation of it and why it's driven the dollar lower is that Geithner's preoccupation with trade issues as opposed to currency suggests there won't be any coordinated effort to underpin the U.S. dollar," said Sue Trinh, senior FX strategist at Royal Bank of Canada,
"It looks like there's still quite a divide in terms of beliefs and expectations. Any thought of a consensus looks pretty difficult at this stage ... but it's a long time between now and Saturday (when the G20 will issue a communique)," Trinh said.
Some saw the possibility of a statement playing down the notion of a currency conflict, which might offer the dollar some support in the near term, but others said any reaction would be brief and attention would flick back to the other major question of how big any quantitative easing by the Federal Reserve might be.
CURRENCY CONSENSUS
The dollar index fell 0.2 percent to 77.264, slipping further away from resistance at 77.60-65, a break of which is vital to keep up momentum for a higher bounce from a 10-month low of 76.144 hit last week.
It has major trend-line support at 76.10, which could limit its downside, although a break there could open the way to last November's low at 74.17.
Prospects for the Fed to pump more money into the economy next month, likely through direct purchases of Treasury debt, have pushed the dollar down more than 7 percent against other major currencies since September.
The euro, which corrected sharply lower this week after a month-long rally, needs to tackle resistance at $1.4050, which it failed to clear on Thursday.
A break above that would open up the way for a retest of $1.4161, the top of the recent rally and its highest level since January.
Dollar/yen slipped 0.3 percent to 81.10 yen, still holding above its latest 15-year low of 80.84 yen set this week and keeping away from its record postwar low of 79.75 set in 1995.
Wariness about intervention has kept the dollar supported, after Japan intervened in September for the first time in six years.
"People are just not quite sure what Japan's tactics are on the currency and how afraid they should be. But clearly there is a little bit of unease about putting on a fresh short position from here," said Sean Callow, a currency strategist at Westpac Bank in Sydney.
But some traders also said speculation is mounting that Japan may not intervene in the near future as global debate is raging over competitive currency devaluation. (Additional reporting by Ian Chua in Sydney and Charlotte Cooper in Tokyo; Contribution by Reuters FX analyst Krishna Kumar; Editing by Edmund Klamann)