FOREX-Dollar firm on yen after jump, rate view helps

* Dollar holds ground versus yen after Friday's surge

* Spike in U.S. yields supports dlr/yen

* Investor focus on U.S. third-qtr earnings

By Anirban Nag

SYDNEY, Oct 12 (Reuters) - The U.S. dollar held above recent 14-month lows against a basket of currencies on Monday as traders trimmed some of their short dollar positions on prospects that U.S. interest rates will move up earlier than expected.

Fed fund futures are now pricing in a funds rate of 0.32 percent in the March contract <0#FF:>, up from near zero, after Federal Reserve Chairman Ben Bernanke said late last week that policy could be tightened as a recovery takes hold.

Those comments, although not new, led to a huge sell-off in Treasuries with benchmark U.S. government bond yields rising to two-week highs on Friday. [US/]

"In a market hypersensitive to monetary tightening comments after Australia's surprise hike, these comments were enough to send bonds lower and the U.S. dollar higher," said Matthew Strauss, senior currency analyst at RBC Capital.

"However, this was a mere drop in an otherwise bucket of U.S. dollar bearishness."

The dollar held firm at 89.82 yen , having jumped nearly 1.6 percent on Friday. It had surged higher with the market caught short and stops being triggered.

Analysts say rising Treasury yields are likely to keep the upward pressure against the yen although resistance is seen around 90.20 yen.

Trade is expected to be light on Monday with holidays in Japan and U.S.

The dollar index <=USD> was at 76.319, off a 14-month low of 75.767, struck on Oct.8. The dollar was under relentless pressure last week as the prospect of U.S. interest rates remaining low for a while led to a huge sell off.

The fall has fuelled talk the U.S. dollar was becoming the preferred funding currency, replacing the yen, for leveraged carry trades.

Data from CFTC showed the value of the dollar's net short position rose to $20.2 billion in the week ended Oct 6, up from $16.6 billion a week earlier. [IMM/FX]

The euro inched up to $1.4732, having lost 0.48 percent on Friday. The euro advanced to 132.37 yen from 132.18 yen late on Friday. The yen ceded ground on the high-flying Australian dollar, which rose to two-month highs of 81.29 yen .

The Australian dollar stayed above 90 U.S. cents, buoyed by expectations of further rate hikes.

This week, the Aussie is likely to take cue from Wall Street where U.S. third-quarter earnings season picks up.

Some of the big corporate names scheduled to post earnings this week are Intel Corp , Johnson & Johnson on Tuesday, JP Morgan Chase on Wednesday, Goldman Sachs and IBM on Thursday and Bank of America and General Electic on Friday. (Editing by Jonathan Standing)