* Kiwi dollar, commodity currencies sag on waning risk appetite
* Euro rebounds from two-week low
* Dollar index extends gains
* Sterling dips as UK govt tries to break Brexit impasse
* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh
By Ritvik Carvalho
LONDON, Jan 17 (Reuters) - The New Zealand dollar moved the most among major currencies on Thursday, falling to a week's low on renewed fears over global growth, while sterling dipped as the British government struggled to find consensus over how to exit the European Union.
A quiet trading session in Asia grew livelier in the Europe, with the dollar hitting the day's high of 96.241 against a basket of currencies and gaining for a third straight day.
On Jan. 10, the dollar almost fell below its 200-day moving average when the index touched a three-month low of 95.029. Since then it has rebounded, and remains above the average.
Long dollar, or buying and holding the dollar, was the most-crowded trade in Bank of America Merrill Lynch's monthly fund manager survey for the second straight month in January.
"We think the dollar is actually subject to downside risk because the market is still very long the currency and at the same time the dollar is likely to lose its rate advantage due to the Fed being closer to a pause in its tightening," said Manuel Oliveri, currency strategist at Credit Agricole in London.
"We are right now long euro/dollar as a trade recommendation."
The U.S. currency held its gains against the euro as worries about the euro zone economy weighed on the euro. The euro was down less than 0.1 percent at $1.1388.
But it was the New Zealand dollar that stole the spotlight, falling over half a percent to 0.6735 per dollar, its lowest since Jan. 9. Renewed worries about the damage a Sino-U.S. trade dispute could do to global growth had investors fleeing risk assets.
The Japanese yen, considered a safe-haven currency by investors, gained 0.3 percent and last changed hands at 108.78 yen per dollar.
Other commodity currencies were also hit, indicating a diminished appetite for risk. The Norwegian crown fell almost half a percent against the dollar and the Australian dollar lost 0.2 percent.
Analysts pointed to changing expectations for New Zealand and Australian central bank policy.
"There is more of an expectation that the Reserve Bank of New Zealand could be cutting interest rates at some point," said Jane Foley, senior currency strategist at Rabobank.
"In Australia, there is more attention to the Reserve Bank of Australia's outlook and there is concern about a slowdown in Chinese growth."
Britain's pound fell 0.2 percent to $1.2853, as Prime Minister Theresa May searched for a last-minute exit deal to break the impasse over how to quit European Union. There was little sign of compromise. (Reporting by Ritvik Carvalho, additional reporting by Dhara Ranasinghe; editing by Larry King)