* Dollar recovers slightly but stays close to recent lows
* Yen the main faller vs the dollar, hitting 3-week low
* Euro struggles as it approaches $1.50; Sterling gains
By Jessica Mortimer
LONDON, Oct 16 (Reuters) - The dollar edged higher against a currency basket on Friday and hit a three-week high against the yen, which suffered as investors took profits on recent sharp gains in a range of currencies against the greenback.
Sentiment towards the U.S. currency remained negative, however, and it hovered not far from 2009 lows hit in Asian trade against the euro and higher-yielding currencies such as the Australian and New Zealand dollars.
Expectations U.S. interest rates will stay low for some time have weighed on the dollar, while optimism about the global economic outlook, buoyed this week by strong U.S. corporate results, has lifted currencies seen as riskier.
Analysts said the dollar's rise on Friday did not reflect any change to this scenario but said investors were wary that currencies such as the euro and the Australian dollar may have limited scope for further gains. The euro, in particular, faced stiff resistance before the key $1.50 level.
These currencies stayed close to recent highs, however, while investors turned to selling the yen, which has recently risen sharply against the dollar despite rising risk appetite and expectations Japan will also have low rates for some time.
Bank of Scotland Treasury currency analyst Naeem Wahid said solid U.S. data on Thursday and better U.S. corporate earnings had helped push spreads between U.S. and Japanese government bonds in favour of the U.S. and that this had helped lift dollar/yen.
"There has been a small improvement in the outlook for U.S. rates relative to Japanese rates, which has weighed on the yen, along with the view that dollar/yen had been oversold over the last couple of weeks," he said.
The U.S. third-quarter earnings season got off to a strong start this week, with Intel, JPMorgan Chase, Google Inc and IBM profits beating estimates.
At 1012 GMT, the dollar was up 0.6 percent against the yen at 91.09 yen, just shy of an earlier three-week high around 91.30 yen.
The euro also hit a seven-week high against the yen of 136.07 yen on EBS trading systems.
Against the dollar, the euro fell 0.2 percent to $1.4912, having risen as far as $1.4968 on trading platform EBS in early trade, its highest since August last year.
"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.
Against a basket of currencies, the dollar edged up 0.1 percent to 75.554, though it stayed close to a 14-month low around 75.211.
Analysts said investors may take some direction from U.S. industrial production and portfolio flows data later in the day, while earnings results were awaited from Bank of America.
STERLING STILL SHINING
Sterling pushed higher, extending the previous day's sharp gains as investors rushed to cover recent very short positions in the UK currency.
The pound strengthened on Thursday 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 UK 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 0.2 percent against the dollar to $1.6305, while the euro fell 0.4 percent to 91.46 pence.
Among higher-yielding currencies, the Australian dollar edged up 0.1 percent to $0.9219, not far from an earlier 14-month high around $0.9271.
(Reporting by Jessica Mortimer, editing by Nigel Stephenson)