* Dollar higher vs euro; $1.40 remains key resistance
* Weekend G20 meeting could spur dollar strength
* Stretched positions suggest caution for dollar bears (Updates prices, adds detail)
By Wanfeng Zhou
NEW YORK, Oct 21 (Reuters) - The U.S. dollar rebounded in volatile trade on Thursday after the euro failed again to hold above $1.40 and as investors turned cautious before a G20 finance ministers meeting this weekend.
The euro had earlier climbed to a high around $1.4050 but failed to sustain gains above key resistance at $1.40 for a second day this week. It also retreated after U.S. stocks came under pressure intraday.
The euro will likely stay in its recent range of between $1.3650 and $1.4150 in the coming days as investors wrestle with uncertainty over the size of expected U.S. monetary easing, traders said. The Federal Reserve is expected to pump more money into the economy next month, likely through direct purchases of Treasury debt.
"There seems to be a willingness to sell euros above $1.40," said John McCarthy, director of FX trading at ING Capital in New York. "We sort of ran into the top of the recent trading ranges."
In late trading, the euro fell 0.3 percent to $1.3921
European central banker Christian Noyer said there was no problem with the euro at its current level, and it was an "over-simplification" to call the single currency overvalued. See [ID:nLDE69K2GV]
Many analysts note $1.40 as a key resistance level, which draws corporate selling interest as companies repatriate their earnings from Europe.
Caution ahead of the G20 meeting also helped the dollar regain ground, and analysts said any joint statements by members agreeing not to devalue their currencies could spur a dollar rebound. See Take-A-Look [ID:nTOE69K01G]
U.S. Treasury Secretary Timothy Geithner said he sees no reason for the dollar to sink further, saying major currencies are "roughly in alignment." This echoed comments he made on Monday that the United States would not devalue the dollar for export advantage. [ID:nSGE69K04Q]
While traders were far from convinced G20 ministers would solve their exchange rate disagreements once and for all, some said there was reluctance to take extreme positions.
"There's so much uncertainty and I really think we'll see a lot of position-jockeying ahead of the weekend," said Greg Salvaggio, vice president of trading at Tempus Consulting. "I wouldn't be surprised to see some dollar strength ahead."
Chris Turner, chief currency strategist at ING, said that if the G20 acknowledges that emerging Asia will have to reform their exchange rate systems and embrace flexibility, it would make a good start to address the global currency war.
"Such an outcome should trigger more flows into the short dollar/Asia trade," he added.
Against the yen, the dollar was up 0.3 percent at 81.34 yen
Sterling
The prospects for more Fed easing have pushed the dollar down about 7 percent against major currencies since September.
But the size, shape and timing of the Fed's move has left investors guessing, and nearly two months of speculation has given them plenty of time to sell the dollar, pushing it to extreme levels against some major currencies.
"There is a touch of apprehension in the market, and concerns are building about how hard the Fed's going to hit and what the market reaction will be," said C.J. Gavsie, managing director of FX sales at BMO Capital Markets. "So we've got to be cautious about getting too bearish on the dollar." (Additional reporting by Steven C. Johnson; Editing by Chizu Nomiyama)