* Dollar steadies as commodity currencies, stocks stall
* Profit-booking on GBP, NZD and CAD vs dollar
* But dollar downtrend expected to resume
By Charlotte Cooper
TOKYO, Oct 21 (Reuters) - The dollar stabilised on Wednesday, aided by profit-booking in rallying commodity-linked and higher-yielding currencies, after being pushed to a 14-month low against a basket of currencies the previous day.
Traders said investors had been cashing in gains in the Canadian and New Zealand dollars, which hit their strongest levels in about 15 months this month, and in sterling, pushing them down about 0.2 percent against the greenback.
The move helped the dollar climb further off a 14-month low against the euro after the single European currency failed to breach a psychological barrier at $1.50 the previous day.
The dollar also got some support from profit-taking in Asian currencies, after markets in Brazil fell on a new government tax on foreign investments aimed at stopping the real from gaining.
The Bank of Canada killed talk of an early rate hike on Tuesday, warning that favourable economic developments were being undermined by the Canadian dollar's strength and sending the currency down sharply.
The move spread to other pairs although comments from New Zealand's central bank chief, Alan Bollard, that a high currency was not necessarily an obstacle to raising the cash rate gave the kiwi a brief lift..
"The BOC's commitment to keep rates low until well into next year weighed on rest of the (growth) proxies," said Sue Trinh, currency strategist at RBC Capital in Sydney.
"Besides, stocks were also struggling, offering the U.S. dollar support and tempering its fall."
The dollar index was flat from late New York levels at 75.565, recovering from a 14-month low of 75.103 on Tuesday.
The Australian dollar retreated from Tuesday's 14-month high above $0.9300 to $0.9223, while the kiwi held steady at $0.7495, having lost 1 percent on Tuesday. It briefly rose as high as $0.7525 after Bollard's comments.
The Canadian dollar steadied at C$1.0498 per dollar, after slipping to C$1.0517 and having tumbled 2 percent the previous day.
The euro fell 0.2 percent to $1.4916. It hit a 14-month high of $1.4994 the day before.
JUST A PAUSE
The dollar has been under pressure this year as investors brace for record low U.S. interest rates well into 2010 and questions mount about its status as the world's main reserve currency.
It has also been hurt by talk that it is fast becoming the new funding currency for carry trades, replacing or at least accompanying another low-yielder, the yen.
It slid 0.1 percent to 90.67 yen, with support seen around 90 yen and Japanese exporters expected to sell into rallies up to 91.00.
San Francisco Federal Reserve President Janet Yellen said the time for tightening in the United States was still several months away, echoing the cautious mood among policymakers there about the pace of the economic recovery.
Policy makers worldwide are watching the dollar's fall push up their own currencies to the possible detriment of economic recovery, with France joining Canada on Tuesday in expressing concern.
But policy makers also want to see a correction in imbalances between exporter and importer nations which contributed to the global economic crisis, corrections which some say will require the greenback to fall.
Tohru Sasaki, chief FX strategist Japan at JP Morgan in Tokyo, expected more dollar weakness to come due to the U.S. current account deficit and lack of flows into the U.S. due to its low yields.
"It's understandable if they are worrying about dollar weakness but it's not easy to stop this trend because it's not a speculative movement," Sasaki said.
The dollar got some respite from softer stocks. Wall Street ended lower and Asian markets were in the red after disappointing U.S. housing and inflation data outweighed strong results from bellwethers Apple and Caterpillar.
Calyon noted the negative correlation between the dollar index and the S&P 500 is consistently high, meaning when stocks rise the dollar index is likely to fall, and this correlation meant earnings from U.S. firms would be as closely followed as U.S. data releases.
"Should earnings continue to beat forecasts the dollar is likely to weaken further," Mitul Kotecha, Calyon head of global FX research, wrote in a client note.
The Bank of England releases minutes of its last policy meeting later in the day. At the meeting held on Oct. 7-8, it held rates at a record low of 0.5 percent and kept its 175 billion pound ($287 billion) asset-buying programme in place.
Sterling came under pressure on Tuesday after Bank of England Governor Mervyn King said Britain was likely to return to positive growth in the second half of this year, but output would remain below its year-ago level for some time.
Sterling steadied at $1.6385 after dipping to $1.6346 earlier. It has risen 4 percent in a week. (Additional reporting by Anirban Nag in Sydney and Satomi Noguchi in Tokyo; Editing by Joseph Radford)