* Euro reverses gains, falls 1 percent to below $1.49
* China should increase euro, yen holdings -- report
* Wall Street slips on speculation over end of tax credit
* BoC's Carney repeats concern on Canadian dollar strength (Updates prices, adds comment, detail)
By Wanfeng Zhou
NEW YORK, Oct 26 (Reuters) - The U.S. dollar rallied from a 14-month low against the euro on Monday as falling stock and commodity prices dampened risk appetite, prompting investors to lock in recent gains in other currencies.
Investors were also reluctant to push the euro higher given the huge amount of bearish trades on the dollar, which suggests a near-term recovery in the U.S. currency is on the horizon.
U.S. stocks fell with financial shares tumbling on concern that a federal tax credit for U.S. home buyers would expire, while oil prices fell more than 2 percent.
"You do have an overall reversal in risk appetite," said Samarjit Shankar, managing director of global FX strategy at BNY Mellon in Boston.
"It's primarily a lot of profit-taking on long risk positions and some hesitation on the part of market participants ahead of the (third-quarter U.S. gross domestic product) number that's going to come out this week," he added.
The euro last traded down 1 percent at $1.4849, near session lows after earlier hitting a 14-month high at $1.5064 on electronic trading platform EBS.
The ICE Futures dollar index, a gauge of the greenback's performance against six other major currencies, was up 0.85 percent at 76.113.
U.S. lawmakers are working on a proposal to phase out the tax credit for first-time homebuyers over 13 months, according to a note from research group ISI Group Inc.
It was a turnaround for the dollar, which struggled earlier, partly due to a report saying China should increase its holdings of euros and yen in its foreign reserves.
An opinion piece in the Financial News, a paper published by the People's Bank of China, said the dollar should remain the principal currency in China's foreign exchange reserves but that the share of euros and yen should increase.
Scotia Capital's senior currency strategist Camilla Sutton, in Toronto, said the report was nothing new and its impact was short-lived. "Everyone knows it takes time to diversify out of the U.S. dollar because there really is no alternative."
HEAVY SHORT DOLLAR POSITION
Against the yen, the dollar rose 0.2 percent to 92.25, near a high of 92.29 hit on EBS earlier, the highest in about one month.
Analysts also said the heavy short positioning on the dollar has hovered in the background, making investors hesitant to sell more dollars despite the currency's weak fundamentals.
Data on Friday showed currency speculators increased bets against the greenback, with the dollar's net short position rising to $18.65 billion in the week ending Oct. 20 from a $17.99 billion net short the prior week.
The U.S. dollar rallied 1.4 percent against the Canadian dollar to trade at C$1.0681.
Canada's central bank governor Mark Carney repeated concerns about the adverse impact of a strong currency on the economy.
Sterling hit a one week-low overnight at $1.6251, remaining under pressure after data on Friday showed the UK economy unexpectedly contracted in the third quarter.
Monday was a quiet day for economic data and focus is likely to center on events later in the week, including a first look at U.S. gross domestic product data for the third quarter and interest rate decisions in Norway and New Zealand. (Additional reporting by Gertrude Chavez-Dreyfuss; Editing by James Dalgleish)