* Dollar pressured as risk sentiment improves, stocks up
* G20 fails to give currencies much direction
* Focus on Fed, BOJ policy meetings this week
(Changes byline and dateline, pvs Tokyo, updates throughout)
By Kirsten Donovan
LONDON, March 16 (Reuters) - The dollar fell on Monday as a rally in financial shares pulled European stock markets higher, with a recovery in risk appetite weighing on the U.S. currency.
The market is looking ahead to Federal Reserve and Bank of Japan policy meetings this week after a meeting of Group of 20 finance ministers at the weekend gave currency investors few trading incentives.
European share indexes .FTEU3.GDAXI rose around 2 percent in early trade, with U.S. stock futures DJc1SPc1 also pointing to a higher open on Wall Street as assurances on the U.S. banking sector led to outperformance of financials.
"We're seeing these moves we've seen so often in the FX markets, with a slight rise in risk appetite, the outperformance of the higher-yielders and a selling off of the dollar," said Christian Lawrence, a rate strategist at RBC Capital Markets.
G20 finance ministers promised more funds to help emerging market economies and said they would use their full fiscal and monetary power to combat the global downturn. [ID:nLE661847]
"The prospect of a greater pool available to stabilise emerging markets is helping risk sentiment stabilise at present and preventing renewed deleveraging flows out of several at-risk regions," said UBS strategist Geoffrey Yu in a note.
The dollar fell 0.41 percent against a basket of currencies to 86.892 .DXY, while the euro rose 0.4 percent from U.S. trade on Friday to $1.2976 <EUR=> and sterling rallied more than 1 percent to $1.4158 <GBP=>.
The dollar was 0.25 percent higher at 98.20 yen <JPY=> after rising as high as 98.50 on demand from Japanese importers. But exporters' selling capped further dollar gains, traders said.
WHAT WILL THE FED SAY?
Traders are waiting to see if the Fed signals after its meeting on Tuesday and Wednesday that it will buy longer-dated Treasuries to help keep interest rates down. [ID:nN15706029]
Fed Chairman Ben Bernanke suggested in an interview that the U.S. recession could last most of the year. [ID:nN15700819]
"If the Fed gives a sign for buying long-term Treasuries following moves by the BoE and the SNB, the dollar is expected to come under selling pressure," said Yousuke Hosokawa, Treasury department senior manager at Chuo Mitsui Trust and Banking.
Central banks are seeking unconventional ways to boost their economies now many have rates at historic lows. Britain's central bank has bought gilts, and the Swiss National Bank intervened in currency markets last week to weaken the Swiss franc to stave off deflation.
The SNB shocked markets by selling the franc, becoming the first major central bank in the current crisis to try to push its currency down. Market players expect further intervention if the currency starts to rise again.
"When equity markets start to reverse and risk starts to sell-off, then that's the time when you're going to see the SNB," said RBS strategist Paul Robson.
The euro hit a 12-week high of 1.5412 francs <EURCHF=> on Monday, up around 0.4 percent on the day.
The Bank of Japan also meets this week and may increase its monthly buying of long-dated government bonds to keep interest rates low and help boost the economy, Japan's Nikkei business newspaper reported.
The BOJ is also considering buying banks' subordinated debt to help bolster their capital, the paper said [nT205177]. (Additional reporting by Kaori Kaneko, editing by Mike Peacock)