NEW YORK (Reuters) - Stabilising US economic growth, falling oil prices and a deteriorating outlook outside the US have led Goldman Sachs to abandon its 10-year bearish stance on the US dollar.

In a research note yesterday, the largest US investment bank said the dollar's long-term downtrend has ended and its undervaluation could lead to a substantial improvement in the US balance of payments position.

"It is time to say goodbye to our long-held dollar bearish stance. For about 10 years we have been negative on the dollar, occasionally wrong but mostly right," Goldman Sachs wrote in a research note.

"But now the valuation and growth-driven improvements that we have been observing for a while have reached the point where they notably improve the medium to long-term outlook for the dollar."

It added, however, the dollar could still face some challenges in the near term such as market positioning, volatility in oil prices and weaker US consumer spending. But the "powerful improvements in the real trade balance suggest the dollar has bottomed". The bank expects capital inflows to start improving.

Goldman revised its forecasts for several US dollar pairings. It now sees the euro falling to $1.45 in three months, compared with estimates of $1.56.

Yesterday, the euro traded a near-six-month low at $1.4779. The dollar has gained more than five percent against the euro so far this month. Yesterday afternoon, the traded at $1.8683 against the UK pound.