* U.S. dollar extends bounce, pound weak
* Focus on Fed's monetary policy meeting, G-20 summit
* Short USD positions at highest since March 2008 (Refiles to fix typo in first paragraph)
By Anirban Nag
SYDNEY/SINGAPORE, Sept 21 (Reuters) - The dollar rose in thin trade on Monday, extending a bounce from late last week as traders covered short positions ahead of a Federal Reserve monetary policy meeting and a Group of 20 summit.
The ailing pound ceded further ground after the Bank of England said on Monday that sterling's long-run sustainable exchange rate may have fallen due to an increased focus on Britain's economic imbalances following the global credit crisis. [nLAG003763].
The pound
The euro rose to a five-month high against the pound
Volumes were on the lower side in Asia, with Japan shut until Thursday for holidays.
"It looked like markets were trying to take out weak stops using thin liquidity this morning," said one trader in Singapore. "But with the Fed looming over the week, we should see people take some profits on their dollar shorts."
The euro
The dollar inched up to 91.95 yen
Against a basket of currencies, the dollar <.DXY> <=USD> was up 0.42 percent at 76.746, off a one-year low of 76.01 struck on September 17. Still, the index has shed over 2 percent this month on speculation the U.S. dollar was fast replacing the yen as the preferred funding currency for carry trades.
"We could see some consolidation after the recent fall in the U.S. dollar," said Patrick Bennett, Asia forex and rates strategist at SocGen in Hongkong.
"But this is unlikely to lead to a reversal in the broad weakness we have seen in the U.S. dollar as this is a liquidity driven rally and investors are taking on more risks."
FEDERAL RESERVE MEETING
Investors have increasingly moved to riskier assets such as stocks, commodities and higher-yielding currencies such as the Australian and New Zealand dollars this month in search of better returns, encouraged by growing signs of a global recovery.
Concerns about a ballooning U.S. fiscal deficit and prospects of rock-bottom rates there for some time have also fuelled dollar selling. More details on the Fed's thinking on monetary policy should emerge from its policy meeting on Tuesday and Wednesday.
The Federal Open Market Committee (FOMC) is expected to hold rates steady but markets will be interested for any guidance on when the super-accommodative policy stance will be wound back, given a recent pick up in economic data.
"The FOMC will likely continue to emphasize the need for accommodation for an extended period," Robert DiClemente, chief U.S. economist at Citi wrote in a note.
"But a sustained improvement in the outlook over the next year, we think, will prompt at least a tentative beginning to normalizing interest rates in the second half of 2010."
Indeed, some analysts argue that with short U.S. dollar positions at their highest since March 2008, the oversold greenback could continue getting a reprieve this week [IMM/FX].
It could also get some support if officials attending the G-20 summit of developed and emerging market economies comment on the U.S. dollar's recent weakness.
U.S. President Barack Obama said on Sunday that with the U.S. economy recovering, now was the time to rebalance the global economy after decades of U.S. over-consumption. [nN2074416]
Growth-linked currencies were softer, weighed down by lower Asian stock markets.
The Australian dollar