* Dollar index pushes higher
* ECB comments keep euro below $1.40
* Sterling scales $1.60 for first time since Nov
* Eyes on stocks, Treasury auction, US data
(Adds quotes, updates prices)
By Kirsten Donovan
LONDON, May 27 (Reuters) - The dollar rose against the euro on Wednesday after a European Central Bank policymaker said further interest rate cuts couldn't be ruled out, but it fell against a buoyant British pound, which reached $1.60.
ECB Governing Council member Erkki Liikanen was quoted as saying on Wednesday that the bank's current key interest rate of 1 percent isn't necessarily the lowest it can go.
That prompted some profit taking after the euro tested $1.40 again overnight, while surprisingly strong demand at Tuesday's auction of two-year U.S. Treasury notes allayed fears over investor appetite for U.S. assets, supporting the dollar.
"It's primarily a euro/dollar story and the fact that we poked up above $1.40 again has prompted some profit taking, the dollar isn't looking that firm elsewhere," said Adam Cole, global head of FX strategy at RBC Capital Markets.
"Overall it's a mixed performance for the dollar and that reflects the fact that we're not seeing much of a lead from the stock market, so we'll wait and see where the U.S. opens."
Sterling outperformed the euro, hitting $1.60 for the first time in almost seven months as investors continued to pare back the large bets against the currency built up after the collapse of Lehman Brothers last year.
At 1000 GMT the euro, which has risen about 10 percent in three months to hit a four-month peak above $1.4050 last week, was back below $1.40 on Wednesday, trading at $1.3952, down 0.2 percent on the day.
The dollar was up 0.2 percent against a basket of six major currencies at 80.21, although it was still within sight of a five-month low set on Friday just below 80.00.
Sterling was up 0.5 percent at $1.6017, having traded as high as $1.6023.
A thin economic data calendar from Europe on Wednesday leaves currency traders to take their cue from equity markets which, along with commodities, remain buoyed by Tuesday's sharp rise in U.S. consumer confidence.
Niels Christensen, FX strategist at Nordea in Copenhagen, said traders may be concerned over U.S. sovereign ratings but at the same time "aren't too enthusiastic" about the euro zone from a data or banking sector standpoint.
In this context, Liikanen's commments echoing what some other ECB Governing Council members have said recently about the possibility of further rate cuts "are obviously not supportive for the euro", he said.
BUYING RISK
The dollar was last up 0.4 percent against the yen at 95.38 yen, the euro was also up 0.2 percent at 133.18 yen and sterling touched its strongest level since November at 152.79 yen, according to Reuters data.
The U.S. Treasury sold $40 billion of debt on Tuesday and sells another $61 billion this week, kicking-off with a $35 billion sale of five-year paper later on Wednesday.
Traders said the market is still closely watching economic indicators such as U.S. housing data. Figures for existing home sales in April will be released on Wednesday, and new home sales data for the same month come out on Thursday.
The biggest mover among major currencies on Wednesday was sterling, which rose above the $1.60 level against the dollar and gained almost 1 percent against the euro.
"The current across-the-board sterling gain has further momentum ahead," said Neil Jones, head of FX hedge fund sales at Mizuho in London. "The 'win treble' for the UK economy of low interest rates, undervalued currency and oversold assets is proving attractive to overseas (investors). The global investor store of idle cash reserves will continue to gravitate towards sterling and away from the dollar and yen," Jones said.
The euro was last down 0.9 percent at 87.00 pence, close to testing key technical support at the 200-day moving average of 86.78 pence.
(Additional reporting by Jamie McGeever)