FOREX-Euro hits 14-month high on China reserves report

* Euro hits 14-mth high vs dlr on report, but trading quiet

* Euro comfortably above $1.50

* Dollar fall limited by spec market positioning

(Updates prices, adds comment)

By Jessica Mortimer

LONDON, Oct 26 (Reuters) - The dollar slipped on Monday, hitting a 14-month low against the euro following a Chinese report saying Beijing should increase its holdings of euros and yen in its foreign reserves.

On an otherwise quiet day, investors jumped on the report as an excuse to sell the dollar, though analysts its losses were capped by stretched market positioning against the U.S. currency that suggests it has limited scope for further large falls.

"With this a very sensitive and topical issue for the dollar, the euro has retained its position comfortably above the $1.50 level," said Jane Foley, research director at FOREX.com in London.

The story out of China was an opinion piece in the Financial News, a paper published by the People's Bank of China, which said the dollar should remain the principal currency in China's foreign exchange reserves but that the share of euros and yen should increase. [ID:nPEK285229]

At 1200 GMT, the euro was up 0.2 percent at $1.5029 , having earlier risen as high as $1.5064 on trading platform EBS, its highest since August 2008.

The dollar index <.DXY>, a gauge of the greenback's performance against six other major currencies, was down 0.15 percent at 75.352, moving back towards a 14-month low of 74.940 touched last week.

Data on Friday showed currency speculators increased bets against the dollar, with the value of 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. [ID:nN23573397]

"The issue of reserve diversification has been an ongoing topic for quite a while, while the other reason the dollar is not selling off more sharply is that the market is already very short dollars and there is only a certain extent that people want to be short," said Michael Klawitter, senior currency strategist at Commerzbank in Frankfurt.

Against the yen, the dollar fell 0.2 percent to 91.85 yen , retreating from a one-month high of 92.23 yen hit on EBS earlier in the day.

The Australian dollar also firmed, getting a boost from the China story, with analysts noting many investors believe it has been included in the currencies that China and other central banks have bought to diversify reserves.

The New Zealand dollar underperformed, however, trading flat on the day at $0.7542 after the country's Prime Minister John Key said New Zealand is concerned over the strength of its currency, but has few tools at its disposal to deal with it. [ID:nKLA010454]

Sterling edged up 0.2 percent to $1.6334, but it stayed not far from an earlier one-week low of $1.6251, remaining under pressure after data on Friday showed the UK economy unexpectedly contracted in the third quarter.

Monday is a quiet day for economic data and focus is likely to centre on events later in the week, including U.S. gross domestic product data for the third quarter and interest rate decisions in Norway and New Zealand.

Figures earlier on Monday unexpectedly revealed German consumer sentiment declined for the first time in just over a year going into November. [ID:nLN478719]

(Reporting by Jessica Mortimer; Editing by Victoria Main)