NEW YORK (Reuters) - The U.S. dollar rose from a more than eight-month low against the euro on Friday on bets recent declines were overdone, but a sustained rebound is unlikely given expectations for further U.S. monetary easing.

An employee of the Korea Exchange Bank counts one hundred U.S. dollar notes during a photo opportunity at the bank's headquarters in Seoul April 28, 2010. REUTERS/Jo Yong-Hak

The Australian dollar earlier surged above parity against the greenback for the first time since flotation in 1983 after Federal Reserve Chairman Ben Bernanke said low inflation and high unemployment made a case for more easing. It later retreated to near session lows as investors debated the outlook for further gains.

Analysts said the U.S. dollar is likely to stay on the defensive until the Fed’s November 2-3 meeting. The downside may be limited, however, as much of the impact from additional Fed asset purchases has been priced into the market and bearish sentiment on the dollar has reached extreme levels.

“The dollar is somewhat oversold against a number of its key counterparts, but I don’t really see much scope for sustained dollar gains ahead of the Fed meeting in November,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange Inc in Washington.

The euro last traded at $1.3971 on trading platform EBS down 0.7 percent on the day. The euro had earlier climbed as high as $1.4161, its strongest level since January 26, and traded as low as $1.3937.

It was a volatile session with the euro swinging in a wide range and briefly paring its loss after a Senate aide said the U.S. Treasury Department will delay until November a much-anticipated report about whether to label China or any other foreign country a currency manipulator [ID:nWBT014199].

The U.S. Treasury later confirmed it would delay the report with upcoming Group of 20 nations and Asia-Pacific meetings providing opportunities to make additional progress on securing balanced global economic growth.

TARGETS

Upside targets for the euro include a late January high at $1.4195 and then $1.4374, the 76.4 percent retracement of the euro’s slide from its November 2009 peak down to a trough hit in June.

The euro, however, may be moving closer to a sell signal on the dollar with the 12- and 26-day moving average convergence divergence line closing on the nine-day signal line, according to Reuters data. The MACD was last at +0.0256, with the signal line at +0.0248.

The MACD is used in technical analysis as an indicator of short-term momentum by focusing on exponential moving averages and closing prices.

The dollar index .DXY, which tracks the greenback against a basket of six currencies, was up 0.4 percent at 76.986, after falling as low as 76.144, the weakest in 10 months. The Aussie dollar last traded at US$0.9893, down 0.5 percent with the session low at US$0.9863.

RISK OF DISAPPOINTMENT

Bernanke gave no details on the central bank’s next step but said policymakers were still weighing how aggressive they should be. He also suggested the Fed could indicate a willingness to hold interest rates low for longer than currently expected.

“The crux of the issue now is how big ... the initial phase of QE2 would be,” said Mike Moran, senior currency strategist at Standard Chartered in New York.

“The actual size could be open-ended. In that sense, I think there is some risk of disappointment in terms of how much information we’re likely to get from the Fed when they do announce the second round of QE,” he added.

Analysts said the dollar could see a rebound if the Fed announces asset purchases of less than $1 trillion or takes a more gradual approach after its November meeting.

The dollar was last little changed at 81.42 yen. It hit a 15-year low of 80.88 yen on Thursday and Friday on EBS, only about 1 yen above its record low of 79.75 yen set in April 1995, keeping the market nervous about the possibility of more Japanese intervention following a first round in mid-September.

(Additional reporting by Herbert Lash ; Editing by Andrew Hay)