FOREX-Dollar falls ahead of Bernanke testimony

                                
  
                                
 * US dollar index slides to lowest since early November
                                
 * Fed's Bernanke unlikely to signal exit from loose policy
                                
 * Expectations of a hawkish ECB support euro; eyes $1.40
                                
 (Adds quote, detail, updates prices)
                                
NEW YORK, Feb 28 (Reuters) - The U.S. dollar fell to a
3-1/2-month low against major currencies on Monday and may
extend losses on speculation Federal Reserve Chairman Ben
Bernanke will continue to support stimulative policy.
                                
 The euro hit a near one-month high above $1.3850 ahead of
an interest-rate meeting by the European Central Bank on
Thursday. The euro could make a run toward $1.40, traders said,
should the ECB maintain a hawkish tone on inflation.
                                
 Bernanke testifies to Congress on Tuesday and Wednesday.
Analysts expect him to stick to his recent economic assessment
that the recovery is strengthening but not enough to bring
about a significant improvement in the jobs market, suggesting
the time is not ripe for U.S. rates to rise.
                                
 "The dollar is remaining on its back foot because other
central banks are turning more hawkish but the Fed is not,"
said Amelia Bourdeau, senior currency strategist at UBS in
Stamford, Connecticut.
                                
 "We don't think (Bernanke) will change his outlook for the
economy. He will emphasize that the Fed has the tool to exit
quantitative easing but is not going to do so yet," she added.
                                
 The U.S. dollar index <.DXY>, which tracks the greenback's
performance against a basket of major currencies, declined to
76.756, its lowest level since Nov. 9.
                                
 Traders said the move below the February trough of 76.881
had triggered fresh-selling by "model" accounts, which are
based on computer-generated trading recommendations.
                                
 The euro <EUR=EBS> gained 0.3 percent to $1.3791, after
earlier rising as high as $1.3857 on trading platform EBS, its
strongest since the start of the month. Technical analysts said
a break of the euro's February high at $1.3862, also the
highest since early November, was needed for added momentum.
                                
 The euro has gained 0.7 percent versus the dollar in
February and is up about 3 percent so far this year after
recent inflation-fighting rhetoric from ECB officials boosted
expectations euro zone interest rates will rise faster than
those in the United States.
                                
 Annual euro zone inflation hit a more than two-year high of
2.3 percent in January, the second month in a row that it has
been above the ECB's target. Inflation will likely rise further
in February due mainly to more expensive oil. [ID:nLDE71R14H]
                                
 Against the yen, the dollar rose 0.2 percent to 81.86
<JPY=EBS>, but was down about 0.3 percent this month.
                                
 HIGHER OIL
                                
 Soaring oil prices also weighed on the dollar in recent
sessions as investors fret the U.S. economy is more vulnerable
to higher energy costs, given its strong reliance on consumer
spending for growth.
                                
  Brent crude oil futures <LCOc1> earlier rose more than $2
per barrel as protests in Oman fueled wider concern about
security of supply from the Middle East after uprisings in
Libya dramatically reduced exports from North Africa. [O/R]
                                
  "The ECB sees rising crude as an upside risk to inflation
rather than the Fed's view that it will be negative for growth.
This is increasing the risks of a near-term overshoot for the
euro," said Lee Hardman, currency analyst at BTM-UFJ in London.
                                
  However, St. Louis Federal Reserve President James Bullard
said on Monday that rising oil prices are not currently a drag
on the recovery. He repeated comments he made last week that he
would like to dial back the Fed's $600 billion bond buying
program. Bullard is not a voting member. See [ID:nN28223114]
                                
 Some analysts said the euro is vulnerable to profit-taking.
Data from the Commodity Futures Trading Commission showed
speculators boosted bets in favor of the euro to the highest
since October in the week ended Feb. 22. [IMM/FX]
                                
 Euro and Canadian dollar long positions in U.S. dollar
terms accounted for $14.7 billion of the total $22.4 billion
U.S. dollar short position.   
                                
 Expectations for strong U.S. jobs data for February, due
out Friday, could also limit the euro's upside. [ECI/US]
                                
 The dollar was little changed at 0.9291 Swiss franc
<CHF=EBS>, not far from a record low of 0.9229 hit on EBS last
week. The dollar lost about 1.7 percent this month against the
franc as tensions in the Middle East and Africa boosted
safe-haven demand for the Swiss currency.
 (Reporting by Nick Olivari and Wanfeng Zhou; Editing by Andrew
Hay)