FOREX-Yen, euro gain vs dollar; BoE's King hits pound

* Dollar falls against yen, focus on 90 yen level

* Euro retreats from 1-year high vs dlr after German data

* Sterling takes hit after BoE King's weak pound comments

* G20 meeting in Pittsburgh in focus (Updates throughout, adds comment, changes byline, dateline, previous LONDON)

NEW YORK, Sept 24 - The dollar mostly fell on Thursday after the Federal Reserve hinted interest rates will stay very low for a long time, and the yen rose broadly as Japanese markets reopened after a three-day holiday.

Sterling also fell across the board after Bank of England Governor Mervyn King told a regional British newspaper a weak pound was helping the economy cope with a sharp downturn.

The euro broke above 91 pence for the first time in nearly six months, a move that also boosted it against the dollar. Gains were limited, though, by a weaker-than-forecast German business sentiment survey.

An unexpected decline in the number of Americans filing for initial jobless benefits also boosted the euro, as it suggested the U.S. economy is improving and pushed investors to sell the low-yield dollar for higher-yielding currencies and assets.

The yen was also a top gainer against the dollar after the Fed's move to leave rates at record lows pushed down U.S. short-term bond yields, eroding the dollar's yield advantage.

The Fed is "keeping policy very, very easy for an extended period. Because of that, we've got a bias very much toward more dollar weakness in the medium term," said Stephen Koukoulas, chief global markets strategist at TD Securities in London.

The dollar fell as low as 90.36 yen on Thursday, according to Reuters data, and was last down two-thirds of a percent on the day at 90.66 yen.

Dealers said the market wanted to push the dollar down to 90.00 yen, a level where there are a lot of options barriers.

The difference between two-year U.S. and Japanese government bond yields shrank by as much as 10 basis points, eroding the dollar's returns over the yen and prompting companies to repatriate funds after a long holiday.

FX AND G20

The euro rose 0.4 percent to $1.4791, near a one-year peak above $1.48 hit on Wednesday. Sterling was down 1 percent at $1.6174 and the euro was up 1.2 percent at 91.22 pence.

More than 1,700 euro/sterling trades went through Reuters Matching in the hour after King's comments, the most in a single hour for at least three months, Reuters data showed.

Traders noted the contrast in King's comments with those from euro zone capitals suggesting some discomfort with the euro's strength and need for Group of 20 leaders this week to address global imbalances, notably Asian currency weakness.

German Chancellor Angela Merkel said currencies should be part of the discussion in Pittsburgh, and Finance Minister Peer Steinbrueck mentioned China's yuan as a focus for discussion.

"I think there will be a fair bit of noise coming out of the G20 with respect to imbalances ... as well as currencies," said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto.

The U.S. delegation was expected to push G20 leaders to address a lopsided global growth model by encouraging debtor nations such as the United States to save more and exporters like China, Japan and Germany to spend more.

But that would likely require a weaker dollar, and a French government source told Reuters this week that France is worried about euro strength against the dollar.

Meanwhile, the euro fell to a three-month low against the Swiss franc below 1.51 francs, as traders tested the resolve of the Swiss National Bank, which has intervened in the market this year to counter franc strength.