* Euro reverses gains vs dollar, trades below $1.50
* Sterling rises after Friday's losses, but outlook grim
* China should increase EUR, JPY holdings - Chinese report
* BoC's Carney repeats concern on Canadian dollar strength (Recasts, updates prices, adds comment)
By Gertrude Chavez-Dreyfuss
NEW YORK, Oct 26 (Reuters) - The dollar rallied from 14-month lows versus the euro on Monday, as riskier assets such as U.S. stocks and commodities fell, prompting investors to lock in recent gains in other currencies.
Analysts also said investors felt uncomfortable pushing 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.
"Most major currencies including the euro are running out of steam. Specifically, the euro's earlier rally wasn't really supported by data as we saw the German consumer confidence was actually weaker," said Kathy Lien, director of FX research at GFT in New York.
Figures earlier on Monday revealed German consumer sentiment unexpectedly declined for the first time in just over a year going into November.
The euro fell to session lows at $1.4951 on the EBS platform after hitting a 14-month high at $1.5064 earlier. By midday, it was at $1.4957, down 0.3 percent on the day.
The ICE Futures dollar index, a gauge of the greenback's performance against six other major currencies, was up 0.28 percent at 75.682.
It was a complete turn of events for the dollar, which struggled earlier, especially in the wake of a report saying China should increase its holdings of euros and yen in its foreign reserves.
The story out of China was an opinion piece in the Financial News, a paper published by the People's Bank of China. The report 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 Chinese report was nothing new and the impact was pretty much short-lived. "The official who made the comment was not even senior and everyone knows it takes time to diversify out of the U.S. dollar because there really is no alternative."
HEAVY SHORT DOLLAR POSITION
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.
Against the yen, the dollar was flat at 92.03, retreating from a one-month high of 92.23 hit on EBS earlier in the day.
Sterling rose 0.3 percent to $1.6360, recovering from one week-lows overnight at $1.6251. Despite the rally in sterling, investors remained bearish on the currency after data on Friday showed the UK economy unexpectedly contracted in the third quarter.
In Canada, central bank governor Mark Carney repeated concerns about the adverse impact of a strong currency on the economy. The U.S. dollar was 0.5 percent higher versus the Canadian dollar at C$1.0591.
"Carney wasn't any more aggressive today about the Canadian dollar strength," said Jacob Oubina, senior currency strategist at Forex.com in Bedminster, New Jersey. "If he had said something out of left field -- maybe a stronger statement on intervention -- then I think dollar/Canada would have gone higher."
The Australian dollar slipped to US$0.9214, while the New Zealand dollar fell 0.5 percent at US$0.7508.
The Kiwi dollar was partly weighed down by comments from New Zealand's Prime Minister John Key saying the government is concerned about the strength of its currency, but has few tools at its disposal to deal with it.
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. (Editing by James Dalgleish)