(Updates after start of European trade, changes dateline from previous TOKYO)
* Market added to bullish bets on dollar in past week
* Euro steadies around eight-month trough
* FOMC, U.S. GDP and nonfarm payrolls main focus this week
* Euro zone inflation due Thursday
LONDON, July 28 (Reuters) - The dollar hovered near six-month highs against a basket of major currencies on Monday, with data and policy releases in coming days set to determine whether its strongest week since March prefaces a broader move higher.
The euro had stabilised a touch in an Asian session weakened by a holiday in Singapore. But it was still trading just above an eight-month trough. Another half-cent fall would take it to its lowest since September of last year.
Two strong weeks running for the dollar have encouraged the belief that the U.S. currency is finally ready to make good on forecasts for a long-awaited recovery as economic growth in the United States easily outpaces that in mainland Europe.
But the scale of the dollar's moves - a 2 percent rise against the euro this month - also increases the odds of some players cashing in some of those gains.
"We think the euro/dollar move may pause for breath at the start of this week before another shift lower at the end of the week," said Adam Myers, head of European currency strategy at Credit Agricole in London.
"The market is clearly short on the euro but there doesn't quite seem to be the fuel over the next day or two to drive it much lower and that may squeeze some of those positions."
Euro zone inflation, already uncomfortably near zero for European Central Bank policymakers, is due on Thursday and will be preceded by German regional and national numbers.
The other big number is U.S. non-farm payrolls on Friday, with expectations for Wednesday's Federal Reserve statement dampened by a series of appearances by chair Janet Yellen and other policymakers in recent days.
In morning trade in Europe, the euro was less than 0.1 percent higher at $1.3438.
"The short EUR/USD trade will likely continue to be a slow burner given the current bearish market positioning in euros," said Kit Juckes, a strategist with Societe Generale in London.
"The consensus is not always wrong, but consensus trades generally require patience. We remain bearish EUR/USD, and any rally should be sold into."
Numbers on Wednesday are expected to show the U.S. economy grew at a 3.2 percent annual pace in the second quarter, up from 2.9 percent in the first. Non-farm payrolls are expected to show a rise of 231,000 in July after they increased 288,000 in June.
Yellen said this month that the Fed could raise rates sooner than initially expected if labour markets continued to improve. Most economists expect the U.S. central bank to start raising interest rates in the second half of next year.
The dollar index was marginally lower at 81.000, after it peaked at 81.084 on Friday, a high not seen since early February. So far this month, it has rallied around 1.6 percent, on track for its best monthly gain since January.
Against its Japanese counterpart, the dollar was steady at 101.81 yen.
The latest figures from the Commodity Futures Trading Commission showed currency speculators increased their bullish bets on the greenback in the week ended July 22.
U.S. Treasury yields, however, remained pinned near recent lows, with the yield on the benchmark 10-year U.S. Treasury note at 2.478 percent in Asia, not far from its U.S. close of 2.469 percent on Friday. The fact that the 10-year yield remains well below 3 percent suggests that investors betting on the dollar were not driven by any material change to the U.S. economic outlook.
Analysts at Barclays said this week's U.S. data could challenge that perception.
"Overall, we expect a relatively upbeat set of data releases, which ought to give the U.S. dollar further support over the week," they wrote in a report to clients.
"We do not expect the Fed to deliver any major surprises, with further tapering of $10 billion likely to be announced." (Additional reporting by Lisa Twaronite in Tokyo; Editing by Catherine Evans)