* Dollar rises above 90 yen as short positions trimmed
* Investor focus on U.S. third-quarter earnings
* Holiday in Tokyo keeps activity thin
By Charlotte Cooper
TOKYO, Oct 12 (Reuters) - The dollar edged broadly higher on Monday, extending a short-covering bounce against the yen as investors trimmed dollar-selling positions on caution that U.S. interest rates could move up earlier than expected.
The dollar had been under heavy selling pressure on the prospect that U.S. interest rates could remain low for a while and it hit its weakest level in eight months against the yen last week and a 14-month low against a basket of six currencies.
But after Federal Reserve Chairman Ben Bernanke said late last week that policy could be tightened as a recovery takes hold, fed fund futures moved to price in a funds rate of around 0.3 percent in the March contract, up from near zero.
His comments, although not new, led to a huge sell-off in Treasuries with benchmark U.S. government bond yields rising to two-week highs on Friday.
"There's a bit less one-way positioning in the market. U.S. rates have come up a little bit and that's caused a good amount of (dollar) short-covering," said a senior trader at a European bank in Hong Kong.
"But over the medium term, I'm not sure it's going to be a major turn in the dollar as opposed to just a reasonable rally which might reduce the market's short-dollar positioning."
The dollar rose 0.4 percent from late Friday's levels to 90.14 yen, its strongest level since the start of the month and pushing up from the eight-month low of 88.01.
Traders said activity was light with Tokyo markets shut for a one-day holiday and a government holiday in the United States.
The dollar had jumped about 1.5 percent on Friday and dealers said there was now talk of dollar stop-loss buy orders up above 90.50-55 yen, with support for the U.S. currency down around 89.20.
"It's hard to see the dollar bouncing back too much given the kind of mood the market has around the dollar and the likelihood that we're going to get pretty good global numbers and U.S. earnings figures which will keep risk appetite pretty buoyant," said Greg Gibbs, FX strategist at RBS in Sydney.
Some of the big corporate names scheduled to post earnings this week are Intel Corp and Johnson & Johnson on Tuesday, JP Morgan Chase on Wednesday, and Goldman Sachs and IBM on Thursday.
U.S. economic data this week includes September retail sales and consumer prices as well as industrial and manufacturing numbers. Gibbs said the risk was the data could give the dollar a bit of a boost, although it was still likely to remain in its recent downtrend.
"The Fed is probably a long way from tightening policy but if we get some sign of strength in the data in the U.S. it could be a bit of a surprise to the market," Gibbs said.
The dollar index, a measure of the greenback against six major currencies, edged up 0.1 percent, climbing further off a 14-month low of 75.767 struck last week.
Expectations for low U.S. interest rates have kept the dollar under pressure with talk that it is becoming the preferred funding currency, replacing the yen, for leveraged carry trades.
Data from CFTC showed the value of the dollar's net short position rose to $20.2 billion in the week ended Oct. 6, up from $16.6 billion a week earlier.
There have also been question marks over its status as the world's reserve currency and on Monday Thailand's central bank chief said the central bank was in the process of diversifying the dollar portion in its foreign reserves.
The dollar's rise against the yen helped the Japanese currency to its lowest in about two months against the Australian dollar and two weeks against the euro.
The euro slid 0.2 percent to $1.4704, having lost 0.5 percent on Friday, but advanced 0.2 percent to 132.50 yen.
The Australian dollar gained to a two-month high of 81.40 yen but retreated from last month's 14-month peak of $0.9092 to stand at $0.9023. (Additional reporting by Anirban Nag in Sydney)