* U.S. dollar gains; rate differentials to weigh
* U.S. debt limit seen pressuring dollar
* Euro, Aussie may pull back further vs yen (Updates prices, adds quotes)
By Julie Haviv
NEW YORK, April 11 (Reuters) - The dollar rebounded on Monday from last week's sharp decline against the euro, but a strong bearish stance toward the greenback is expected ahead of next month's U.S. debt limit debate.
Disparities in global central bank monetary policy will not help the currency.
The dollar found support after a U.S. government shutdown was averted on Friday and the currency's rise was widely viewed as overdue after its sell-off versus the euro for the last four months. So far in April, the dollar is still down more than 2 percent.
Interest rate differentials between Europe and the United States, however, are expected to continue to support the euro following the European Central Bank's 25-basis-point rate increase last week. The U.S. Federal Reserve is widely expected to keep rates low until late this year or early 2012.
While the Commodities Futures Trading Commission's latest report showed a narrowing of the net short USD position to $30 billion, it was only because of a build in short yen positions. All other currencies are net long against the dollar.
"Sentiment is extremely bearish the USD," said Camilla Sutton, chief currency strategist at Scotia Capital in Toronto.
The dollar index <.DXY >, which tracks the greenback against a basket of currencies, was flat at 75.054, but only slightly above the 16-month low of 74.84 set on Friday.
Sutton said there are many reasons for the recent round of USD weakness, but the two most important are diverging monetary policy paths between the United States and the rest of the advanced and developing economies and the weak U.S fiscal position.
"A period of retracement is likely approaching, but we still expect further USD weakness, with the most important risk a shift in stance at the Fed," she said. "We expect the USD to close the year at weaker levels than it is currently trading."
In late afternoon New York trading, the euro
"The euro's drop today is nothing more than white noise, and the pullback should prove shallow," said Jessica Hoversen, foreign exchange and fixed income analyst at MF Global in New York.
The dollar's negative tone should remain in place as long as the Federal Reserve keeps interest rates low and while central banks abroad, namely the ECB and Bank of England, move closer to more normal borrowing costs, she said.
Even so, Hoversen said the euro will ultimately head lower this year, particularly after Portugal last week sought financial aid from the European Union and the International Monetary Fund.
"The ECB rate hikes are going to torpedo the fiscally weak peripheral nations such as Spain, in terms of higher bank funding and mortgage costs," she said.
Risk reversals for one-month euro/dollar options are still showing a solid bias for "puts" this year, though the currency has rallied 8 percent so far in 2011.
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For graphic on euro/dollar spot rate: http://r.reuters.com/hyz88r
ECB in graphics: http://r.reuters.com/kah88r
The euro zone's debt struggle: http://r.reuters.com/hyb65p ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Inflation data, meanwhile, could potentially sway currency sentiment this week, with Germany, Spain, Hungary, Sweden and the United Kingdom all releasing reports on Tuesday. In the United States, inflation data will be released on Thursday and Friday.
Currency traders have also started to talk about U.S. government debt hitting its limit in a month's time, a scenario that should renew pressure on the dollar.
The United States is $95 billion away from reaching the statutory $14.3 trillion ceiling, according to the latest data.
The euro was down 0.5 percent at 122.10 yen
Technical indicators also suggested that the euro and Australian dollar are in overbought territory against the yen, pointing to the possibility of a near-term pull-back. (Additional reporting by Gertrude Chavez-Dreyfuss; Editing by Dan Grebler)