* Bernanke-U.S. economy faces "unusually uncertain" time
* Dollar, yen rally as risk appetite fades
* Investors await euro zone banks' stress test results (Updates prices, adds detail, comment)
By Wanfeng Zhou
NEW YORK, July 21 (Reuters) - The euro fell sharply against the dollar while the yen rallied on Wednesday after Federal Reserve Chairman Ben Bernanke expressed concern about the U.S. economy and dampened risk appetite.
Bernanke, in testimony prepared for delivery to the Senate Banking Committee, said the U.S. economy faces "unusually uncertain" prospects and the central bank was ready to take further steps to bolster growth if needed. For more, see [ID:nWALLIE6DU]
The comments pushed the euro down more than 1 percent versus both the dollar and yen as worries about the health of the global economy spurred investors into the safe-haven U.S. and Japanese currencies.
"The market was looking for some form of concrete action from Bernanke, a commitment to do something. All we got was that they're aware of the risks and are prepared to take as yet unspecified actions," said Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey.
"Reaction is basically turning into a spasm of despair," he added. "In FX, the yen crosses are your real indicator of risk aversion."
In late New York trading, the euro was down 1 percent at $1.2763 EUR=, after having fallen as low as $1.2732, according to electronic trading platform EBS.
Against the yen, the euro fell 1.5 percent to 111.07 EURJPY=.
The dollar fell 0.6 percent to 87.02 yen JPY=. The Japanese currency also surged versus sterling and the Australian and New Zealand dollars.
"If there is a theme to Mr. Bernanke's testimony today it is uncertainty, over the state of the economy and the likely path of Fed policy," said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York.
STRESS TESTS AHEAD
Tepid demand at a Portuguese debt sale also weighed on the euro as it heightened fears about Europe's banks days before the European Union was due to reveal which ones need to raise more capital.
The euro had a good run against the dollar in recent weeks, rising to a 10-week high above $1.30 on Tuesday as traders began to bet most of the 91 European banks being examined would pass their stress tests. The test results are to be released on Friday. [ID:nLDE66K0YO]
European policy makers have expressed confidence their banks would pass the tests, though some analysts said investors remain skeptical about the severity of the health checks.
Major listed banks, which face constant investor scrutiny, are expected to pass, but the tests may show the worst problems lie with smaller players such as Spanish cajas and German landesbanks, which are mainly unlisted. [ID:nLDE66J0GP]
UBS currency strategist Amelia Bourdeau said investors are starting to "lower their expectations" for the stress tests, thus hurting the euro.
"Debt stress in the euro zone is not going to disappear overnight," she said. (Additional reporting by Steven C. Johnson, Vivianne Rodrigues and Nick Olivari; Editing by Andrew Hay)