NEW YORK (MarketWatch) - The dollar lost ground against major rivals on Monday as U.S. equities extended a rally ahead of a heavy flow of corporate earnings this week. The greenback was briefly higher during the overseas trading session after remarks by a Federal Reserve official over the weekend. The dollar index (DXY 76.20, -0.12, -0.15%) , a measure of the greenback against a trade-weighted basket of currencies, slipped to 76.115 from 76.461 in late New York trading on Friday. The euro bought $1.4786, up from $1.4705 Friday. The dollar was little changed versus the Japanese yen, buying 89.82 yen. Strategists said trading activity was subdued as U.S. bond markets are closed for Columbus Day. Also, markets in Japan are closed for Health-Sports Day, while Canadian markets are shut for Thanksgiving Day. In early U.S. trading, the Standard & Poor's 500 Index (SPX 1,075, +3.57, +0.33%) gained 0.6%. Gains in equities have weighed on the dollar for many months as investors move into higher-yielding assets and no longer desire the relative safe-haven of the U.S. currency as the economy improves and the financial crisis fades into the distance. The dollar advanced during the overnight session as St. Louis Federal Reserve Bank President James Bullard said Sunday that unemployment is headed into double digits, while the medium-term inflation outlook poses more risk than generally believed. See more on Bullard. "I am concerned about a popular narrative in use today ... that the output gap must be large since the recession is so severe ... [and] any medium-term inflation threat is negligible, even in the face of extraordinarily accommodative monetary policy. I think this narrative overplays the output-gap story," he was quoted as saying by Dow Jones Newswires. The remarks follow a speech late last week by Federal Reserve Chairman Ben Bernanke, which was credited with lifting the dollar Friday. Strategists deemed the remarks non-controversial, with Bernanke saying the Fed would begin to tighten monetary policy before inflation pressures emerged. The remarks were still enough to encourage traders to unwind some short dollar positions, analysts said. Still, many investors and traders continue to hold bets that the dollar will decline further, said strategists at Brown Brothers Harriman. The dollar index is down 12% since March. With other central banks deemed more likely to raise interest rates before the Fed, the U.S. will continue to have rates that are considered unattractive to investors. "While we recognize that the short dollar position is crowded, we see no signs that it is about to reverse and note that interest rate support continues to be largely absent," they wrote in emailed comments.

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