* Euro's upside seen intact; dollar struggles
* Fed's Bernanke expected to stay cautious
* ECB likely to talk tough about fighting inflation
* Aussie dips; RBA statement suggests no rush to raise rates
(Updates prices, adds details on sterling, Australian dollar)
By Ian Chua and Masayuki Kitano
SINGAPORE/SYDNEY, March 1 (Reuters) - The dollar struggled
to regain its footing on Tuesday after a steep decline, while
the euro hovered near a one-month high as investors bet the
Federal Reserve will stick to its easing course even as the
European Central Bank talks of tightening.
Fed Chairman Ben Bernanke is expected to remain cautious
about the economy at his semi-annual testimony before the Senate
Banking Committee starting at 1500 GMT.
In the words of New York Federal Reserve Bank President
William Dudley: "We're still very far from achieving our dual
mandate of maximum sustainable employment and price stability."
This puts the Fed at odds with other major central banks,
which are starting to worry about rising price pressure, and
reinforces the view that the European Central Bank will probably
hike rates before the Fed.
The dollar index , which tracks its performance
against a basket of major currencies, edged up 0.1 percent to
76.948, but still remained close to a 3-1/2 month low of 76.756
hit on Monday.
Bernanke's testimony could provide the impetus for more
dollar-selling, said Andrew Robinson, FX market strategist for
Saxo Bank in Singapore.
"If we get any indication that he is going to complete the
QE2 measures all the way through...I think it is quite possible
we will see further dollar weakness," he said, referring to the
Fed's $600 billion bond-buying programme.
If the dollar index drops below trendline support around
76.20 that roughly links its 2008, 2009 and 2010 lows, that
could open the way for a further decline toward its 2010 trough
of 75.631, Robinson added.
The euro held steady at $1.3806 , hovering near a
one-month high of $1.3857 hit on trading platform EBS on Monday.
A break of its February high at around $1.3862 could pave the
way for a test of $1.40, traders said.
Markets are keeping a close eye on the outcome of the ECB's
policy meeting on Thursday, deemed as one of the most important
of the year given a potent cocktail of new economic forecasts,
crisis support withdrawal and the potential for tough talk on
inflation.
Sterling, which has been supported by market expectations
for the Bank of England to raise interest rates before the Fed,
rose to as high as $1.6300 earlier on Tuesday,
matching a peak hit early last November.
It later trimmed its gains to stand steady on the day at
$1.6262. A rise to above $1.6300 would take sterling to a
13-month high.
LONG-TERM INVESTORS SIDELINED
However, there are some doubts as to how much further the
dollar may weaken in the near-term.
Kimihiko Tomita, head of foreign exchange at State Street
Global Markets in Tokyo, said it may be premature to expect
major currencies to start forming strong trends at this point
because many long-term investors are taking a wait-and-see
stance.
On one hand, global institutional investors are worried that
global economic growth could suffer if unrest in Libya spreads
to Middle East oil producers and causes further surges in oil
prices, Tomita said.
But they also see the possibility that calm could return
relatively quickly, he said.
"It is hard to choose between one or the other, so there is
no need right now to make a bet, and long-term players are
taking a pause," Tomita said.
Recently, long-term investors have shown demand for equities
in developed economies such as the United States, the euro zone
and Japan as well as Norway, but it is not as if there has been
any strong shift away from emerging markets, he added.
The Australian dollar slipped 0.3 percent to $1.0157
, having touched a two-month high of $1.0203 earlier.
The Australian dollar fell from around $1.0185 after the
Reserve Bank of Australia kept interest rates unchanged at 4.75
percent, as expected.
The central bank said inflation looked set to remain within
its desired range all year, strongly suggesting the central bank
was in no hurry to raise interest rates.
Versus the yen, the dollar rose 0.5 percent to 82.18 yen
, hovering right near the middle of its roughly 81 yen to
84 yen range seen over the past month.
Data on Japanese margin traders shows that the Japanese
retail investors have been buying the dollar aggressively
recently as the U.S. currency retreated from a peak near 84.00
yen hit in mid-February.
The Japanese margin traders' net long position in the dollar
against the yen swelled to record $2.94 billion as of last
Friday, up from $1.73 billion a week earlier.
(Additional reporting by Hideyuki Sano in Tokyo; Editing by Kim
Coghill)
