* 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.
Sterling was the biggest mover amongst the majors, propelled higher by receding pessimism about the UK economy and financial sector, and helped by a general move into riskier assets as equity markets rose after a pick-up in U.S. consumer confidence.
The pound 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.
"Sterling continues to do well, it's partly that it was oversold in the early part of the year and now we're getting a correction and also that it's seen as a beneficiary of the risk appetite," said Rabobank strategist Jeremy Stretch.
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," 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."
At 1120 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, trading at $1.3910, down 0.5 percent on the day.
The dollar extended early gains to stand 0.4 percent higher against a basket of six major currencies at 80.41, although it was still within sight of a five-month low set on Friday just below 80.00.
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 comments 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
Sterling was up 0.4 percent at $1.5993, having traded as high as $1.6040 and also 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 0.8 percent at 87.09 pence, close to testing key technical support at the 200-day moving average of 86.78 pence.
The dollar was up 0.3 percent against the yen at 95.32 yen with the euro down 0.1 percent at 132.74 yen. The broadly stronger pound touched its highest level since November at 152.85 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. (Additional reporting by Jamie McGeever)