The dollar rebounded from a fresh low on Monday as traders pared back bets against the currency after the weekend's Group of Seven meeting yielded no call to action on the falling greenback.

Having hit record lows against the euro and a basket of major currencies earlier on Monday, the dollar bounced back with investors now betting its decline may have gone too far, too fast.

The greenback chalked up gains of over 1 percent against the Canadian and New Zealand dollars, while falling equity markets and rising risk aversion among investors pushed the yen sharply higher across the board.

Growing risk aversion dragged down stocks and government bond yields globally, encouraged further unwinding of yen-funded carry trades where investors borrow a low yielding currency to buy a higher yielding one.

The dollar rally is the result of a flight back to the U.S. for U.S.-based investors; the need to pay margin calls in dollars; a round of profit taking and carry unwind, said Camilla Sutton, currency strategist at Scotia Capital in Toronto. We expect to see more of this in the near term, which could see the dollar remain strong over the next few days before we revert back to the dollar weakness theme.

The statement from G7 finance ministers and central bankers at the weekend made no specific mention of the dollar's recent weakness, which prompted investors to sell the U.S. currency early in the global session.

There was always a risk of a pullback, said Jeremy Stretch, currency strategist at Rabobank. It was profit taking ahead of New York and liquidity is relatively thin.

Late morning in New York the euro was down 1.1 percent on the day at $1.4148, having traded at a fresh lifetime high of $1.4348 earlier in the day and as low as $1.4136, a spread of more than two cents on the day.

The dollar index was up 0.9 percent at 78.066 (.DXY: Quote, Profile, Research), rebounding from a post-Bretton Woods low of 77.093 struck earlier. At its peak on the session, the dollar index had posted its biggest one-day gain since July 2006.

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The euro sank 1.5 percent against the yen to 161.29 yen, well off last week's 2-1/2 month peaks of 167.72 yen, while the dollar was off 0.4 percent against the Japanese currency at 113.98 yen.

But the greenback fared much better against most other currencies, up 1.4 percent against the Canadian dollar at C$0.9798, while the New Zealand dollar was off 0.9 percent at $0.7405.

Some of the Canadian dollar's drop was attributed to remarks from Bank of Canada Governor David Dodge on Sunday, where he suggested the Canadian dollar's gain against the U.S. dollar was speculative and not strictly linked to the economy or weak greenback.

Sterling was down 1.2 percent at $2.0281.

U.S. stock indexes fell on Monday following declines in major European stock markets, gold was down around 2 percent and oil down more than 1 percent.

Market players expect the jittery market conditions, crumbling housing market and weak U.S. bank earnings to keep the Federal Reserve on track to cut interest rates this month.

This should keep the dollar under pressure in the coming weeks and months, particularly after the G7 communique specifically called on China to let its yuan currency rise in value more quickly and made no reference to the dollar.

Among speakers today are Federal Reserve Bank of Chicago President Charles Evans at 2300.

Comments from Federal Reserve Governor Randall Kroszner on Monday, where he said credit markets may take a while to recover from turmoil over the summer and policy-makers stand ready to act to ensure smooth market functioning, had little impact on currencies.

(Additional reporting Jamie McGeever in London)