* Dollar supported by risk aversion, Bernanke awaited
* Weak U.S. consumer confidence weighs on higher-risk FX
* Analysts: Dollar may fall on Bernanke testimony
(Adds detail, comment)
By Naomi Tajitsu
LONDON, Feb 24 (Reuters) - The dollar held broad gains on Wednesday after weak U.S. consumer confidence data the previous day limited risk appetite, and as investors braced for testimony from Federal Reserve Chairman Ben Bernanke.
Higher-yielding currencies, including the Australian dollar, slipped as European shares dipped, but currencies stuck to narrow ranges as few investors were keen to take big positions before Bernanke begins his Congressional testimony at 1500 GMT. Investors will scrutinise Bernanke's comments for clues to the Fed's interest rate outlook after the U.S. central bank last week raised the rate at which it offers emergency loans to banks, a move it insisted was technical.
Analysts said evidence the economy continues to struggle, highlighted on Tuesday by a fall in consumer confidence to a 10-month low in February, supports the Fed's position that interest rates will stay low, and that Bernanke would reiterate this view. "On the back of the consumer confidence report, and given that inflation is benign and unemployment is still high, the market has confirmed that Bernanke will say rates will stay low for an extended period," said Jane Foley, research director at Forex.com.
She added that such an outcome may evoke limited initial reaction from the dollar, while any suggestion of a change in the Fed's view that rates will stay low for an extended period, though unlikely, may boost the U.S. currency.
The euro edged up, but gains were limited as stock markets suffered, keeping investors largely averse to risk. Foley added this was the main driver of the market in Europe, keeping dollar losses minimal.
By 1058 GMT, the euro was 0.3 percent higher on the day at $1.3550. The single European currency was propped up as some traders further trimmed short positions following broad weakness in past weeks.
The euro hovered near a nine-month low hit versus the dollar last week and stayed on the back foot after GfK data showed German consumer sentiment was set to decline into March, following weak business sentiment data on Tuesday. [ID:nBAF003980]
Concerns about Greece's public finances also kept the single European currency vulnerable to more losses. A ratings downgrade of Greece's four largest banks by Fitch on Tuesday reminded investors of the financial woes facing the country.
Underlining risk aversion, European shares <.FTEU3> traded 0.2 percent lower, after falling half a percent in early trade.
The dollar was slightly lower against a currency basket at 80.710 <.DXY>, but stayed near an eight-month high of 81.342 hit late last week.
The Australian dollar <AUD=D4>, often considered a high-risk currency, traded 0.1 percent lower against the U.S. dollar at $0.8888, having hit a session low of $0.8857. The Aussie retreated from a one-month high of $0.9072 hit on Wednesday.
It also slipped against the yen, which held gains after rallying across the board on Tuesday on perceived safe-haven demand. The dollar <JPY=> slipped 0.1 percent to 90.10 yen, further retreating from climb above 92 yen last week.
Bernanke's testimony follows a speech by St. Louis Fed President James Bullard, who on Tuesday said that if the U.S. economy performed as expected, rates were probably on hold into 2011. [ID:nNAT007288]
Bullard also said the Fed would like to try out the 50 basis point spread between the discount rate and the Fed funds rate -- which is at essentially zero.
He added he was happy to interpret the Fed's use of "extended period" in its policy statements on U.S. interest rates to mean that rates would stay low for six months.
"We would expect (Bernanke) to reiterate and echo recent comments from Bullard that last week's hike in the discount rate hike was not akin to policy tightening, and that hikes in the fed funds is still a long way away," RBC analysts said in a note.
"If so, we would expect this to weigh on (the dollar), lift stocks and reverse the sharp moves seen through yesterday."
(Editing by Nigel Stephenson)