* Kiwi slides, hits 19-yr low vs Australian dollar
* Euro's upside thwarted by key resistance level
* Losses seen limited ahead of ECB meeting on Thursday
* Bernanke sounds relaxed about inflation
By Ian Chua
SYDNEY, March 2 (Reuters) - The euro stayed on the back foot on Wednesday after yet again failing to break through a key resistance level, helping lift the dollar off a 3-1/2 month low against a basket of currencies.
However, further declines for the common currency may be limited a day ahead of a European Central Bank meeting. Given that euro zone inflation is well above the ECB's target, markets expect the central bank may sharpen its anti-inflation rhetoric.
"We're not likely to see a very deep pull-back in the euro given the possibility the ECB strikes a very hawkish tone, which contrast pretty starkly with the Fed," said Sean Callow, strategist at Westpac Bank.
Indeed, Federal Reserve Chairman Ben Bernanke told the U.S. Senate Banking Committee that while he saw increasing evidence the U.S. economic recovery has enough momentum to become self-supporting, jobs growth remained far too anemic.
Bernanke also said the surge in oil prices was unlikely to hurt the U.S. economy unless it was sustained. Oil prices hit another 2-1/2 year high on Tuesday as supply disruptions and more turmoil in the Middle East and North Africa kept investors on edge.
His comments cemented market expectations the ECB will probably raise interest rates before the Fed.
The euro fell 0.2 percent to $1.3756 . The euro has retreated after it failed on Tuesday to clear a one-month high of $1.3857 struck on Monday.
Support is seen around $1.3700/10, lows that have supported the common currency in the past few sessions. A break above $1.3860 should open further upside potential towards the $1.42 area, BNP Paribas analysts said.
The euro's dip helped the dollar climb from a 3-1/2 month trough against a basket of major currencies. The dollar index last stood at 77.121, up 0.1 percent on the day. It fell as low as 76.735 on Tuesday, its lowest since early November.
The dollar also rose against the New Zealand dollar, which slid 0.9 percent to $0.7402 and tumbled to a 19-year low against the Aussie.
The kiwi fell after New Zealand Prime Minister John Key told Bloomberg in an interview that he expected New Zealand's central bank to cut interest rates next week after the devastating earthquake in Christchurch.
Traders said the drop in the New Zealand dollar was exacerbated by stop-loss selling, with the Australian dollar gaining an additional lift against the kiwi after option barriers were taken out at NZ$1.3650.
The Australian dollar climbed to as high as NZ$1.3669 , the Aussie's highest level against the kiwi since August 1992. After trimming some gains, the Aussie was up 0.7 percent from late U.S. trading on Tuesday at NZ$1.3640.
EYES ON US JOBS
Against the yen, the dollar rose 0.1 percent to 81.92 yen , having found support at 81.60 in the past few sessions, after a near three percent slide from around 84.00 in mid-February.
Still, analysts remain doubtful the dollar will continue to recover.
"The last chance of a short-covering rally for the USD likely lies with Friday payroll and the outside risk of an ISM-like 500k jobs boost," Peter Frank, strategist at Societe Generale wrote in a client note.
"Worryingly for USD bulls, even a monster payroll may fail to deliver a USD rally as the bar has been raised very high thanks to record strength already being seen in European PMIs, and Germany itself enjoying a surprise slump in February unemployment data."
Data on Tuesday showed U.S. manufacturing grew in February at its fastest rate in nearly seven years, while the euro zone's manufacturing sector expanded at its best pace in nearly 10 years.
The data supported forecasts for a strong improvement in U.S. non-farm payrolls due on Friday. Analysts polled by Reuters expect payrolls to rise by 185,000, after a tepid 36,000 rise in January. (Additional reporting by Masayuki Kitano in Singapore, Hideyuki Sano in Tokyo; Editing by Tomasz Janowski)