* Short interest falls 3.2 pct on NYSE

* Edges down 0.1 pct on Nasdaq

* NYSE short interest down 20 pct since yr-high in March

By Edward Krudy

NEW YORK, 10 NOV (Reuters) - Short interest on the Nasdaq and NYSE fell in the second half of October, the exchanges said on Tuesday, reversing a rise in the first half of the month as the equity rally showed few signs of turning around.

Despite the rise in early October, short interest has been tending steadily lower this year as short investors continue to be squeezed by an equity market rally that has driven the broad S&P 500 .SPX index 61 percent higher since early March.

"The short sellers have gotten pretty beat up this year," said Harry Strunk, principal at Treflie Capital Management in West Palm Beach, Florida. "It's been a roller coaster because the first two months of the year were two of their best ever and then March reversed on them and killed them."

Short interest fell 3.2 percent on the New York Stock Exchange in the last two weeks of October, to about 13.01 billion shares, or about 3.4 percent of total shares outstanding.

Back in late March short interest on the NYSE amounted to 16.17 billion shares, the highest level this year. But that has eroded nearly 20 percent to current levels as financial markets rebound from the biggest meltdown in decades.