* Dollar recovers slightly but still close to recent lows
* Euro struggles as it approaches key $1.50 level
* Sterling gains as short squeeze continues; yen falls
By Jessica Mortimer
LONDON, Oct 16 (Reuters) - The dollar edged higher on Friday as investors took some profit on recent sharp gains in the euro and higher-yielding currencies before the weekend, though it hovered near multi-month lows.
Sentiment towards the U.S. currency remained weak as optimism about the global economic outlook, buoyed by a string of strong U.S. corporate results, turned people away from the greenback in favour of perceived riskier currencies.
The U.S. third-quarter earnings season has got off to a strong start, with Intel, JPMorgan Chase, Google Inc and IBM profits beating estimates.
The euro and higher-yielding currencies such as the Australian and the New Zealand dollars hit new highs for the year against the dollar in Asian trade.
But analysts said the euro struggled as it approached the key $1.50 level.
"The euro is very technically driven at the moment and it is meeting good selling around the $1.4950 level," said Commerzbank currency analyst Antje Praefcke in Frankfurt.
At 0816 GMT, the euro was down 0.2 percent against the dollar at $1.4908, having risen as far as $1.4968 on trading platform EBS in early trade, its highest since August last year.
The dollar index rose 0.1 percent to 75.546, though it stayed close to a 14-month low around 75.211.
Sterling continued to push higher, extending the previous day's sharp gains as investors rushed to cover recent very short positions in the UK currency.
Thursday's sterling gains came after Bank of England policymaker Paul Fisher said he felt more confident the bank's quantitative easing programme was working, though analysts said the move was more about a short squeeze on the currency than fundamentals.
"The scale of yesterday's move is a reminder of the vulnerability of a market that has positioned itself so actively for sterling downside," Daragh Maher, currency analyst at Calyon said in a note to clients.
Sterling rose 0.4 percent against the dollar to $1.6345, while the euro fell 0.6 percent to 91.31 pence.
Elsewhere, the yen fell, with the dollar hitting a three-week high as investors reduced recent long positions in the Japanese currency.
"The yen has been really strong over the past couple of weeks and people are starting to wake up to the fact that it is not just the dollar that has very low interest rates but the yen as well," Praefcke said.
The dollar gained 0.5 percent to 91.03 yen, having hit a three-week high around 91.23 yen.
She added that investors may take some direction from U.S. industrial production and portfolio flows data later in the day, while U.S. corporate earnings were awaited from Bank of America and U.S. conglomerate General Electric.
Among higher-yielding currencies, the Australian dollar was steady at $0.9207, having hit a 14-month high around $0.9271.
"An increasingly positive mood on the global economy has been supporting higher-yielding currencies. While the yen is not one of these currencies, it had been firming, and now we are seeing some correction," said Ayako Sera, market strategist at Sumitomo Trust & Banking in Tokyo.
(Additional reporting by Kaori Kaneko in Tokyo, editing by Nigel Stephenson)