* State election loss a blow for Germany's Merkel
* Euro eyes Asian support clustered $1.4030/10
* Hawkish comments from some Fed officials help dollar
By Anirban Nag
LONDON, March 28 (Reuters) - The euro eased on Monday and could fall toward mid-March lows after a state election loss by Germany's ruling party raised doubts about the tackling of Europe's debt crisis, while the dollar was aided by hawkish comments from Federal Reserve officials.
The higher-yielding Australian dollar, hit a 29-year peak of $1.0307, breaking past option barriers at $1.03. The recent yen-weakening intervention and stronger risk appetite were factors underpinning the Aussie's rise, traders said.
For the euro, the failure to break through option barriers around $1.4250 last week saw some paring in speculative long positions, although support around $1.4015/35 appeared to be holding for now with bids by Asian central banks around $1.4030 were also cited.
"It is a combination of setbacks to German Chancellor Angela Merkel's party and the dollar being lifted by those comments from Fed officials which led some investors to short the euro," said Adam Myers, senior currency strategist at Credit Agricole.
"Those positions could get squeezed out and that could see the euro rise towards $1.4125, but beyond that looks unlikely. The chips in the table are moving as we could see positive dollar sentiment dominate."
The euro was down 0.1 percent to $1.4070, off a 4-1/2 month high of $1.4249 hit last week on EBS. It fell to around $1.4020 earlier, after having triggered stops below $1.4050.
The euro has support at the 20-day moving average near $1.40, and trendline support around $1.3975, which is drawn through the euro's Jan. 10 low of $1.2860 and March 11 low of $1.3752.
A drop through such support could open the way for further falls, with Credit Agricole's Myer adding that it could drop to around $1.3850--its low on March 15.
The euro had been due for a pull-back, and the dollar due for a bounce, judging from market positioning. Latest data from the Commodity Futures Trading Commission shows speculators raised the value of dollar net short positions to $29.82 billion in the week ended March 22, up from $27.07 billion.
DOLLAR MOVING UP
Merkel's conservatives lost power in a regional stronghold on Sunday, with early poll results showing the Greens, buoyed by Japan's nuclear crisis, surging to their first premiership in the Baden-Wuerttemberg state.
Losing two elections in a row in states where there is normally strong support have cast doubts about whether Merkel's policy on Europe has the support of the German people. This could call into question Germany's role with respect to the bailout fund and any future agreements.
This uncertainty could cause peripheral bond spreads to widen and weigh on the euro this week.
Still, the ECB seems to be on track for a rate hike next month with Governing Board member Ewald Nowotny on Sunday saying it wanted to move towards a more "normal" monetary policy despite recent events in Japan.
European Central Bank President Jean-Claude Trichet speaks at 1300 GMT and is likely to reiterate his hawkish stance towards inflation.
Meanwhile, the dollar held on to Friday's gains sparked by hawkish comments from regional Fed officials.
Philadelphia Federal Reserve Bank President Charles Plosser, a well-known inflation hawk, said on Friday the U.S. central bank will have to reverse its easy money policy in the "not-too-distant future" to avoid sowing the seeds of inflation.
Plosser's comments were supported by St. Louis Federal Reserve President James Bullard, who said on Saturday that lengthening the 'extended period' of low rates could encourage a liquidity trap.
"The prospect of further QE is looking ever more remote and the market is probably still unsure how to respond to liquidity to withdrawal," said Geoffrey Yu, currency strategist at USB.
"With key data prints this week expected to offer further confirmation of improving conditions in the U.S....the stage may be set for a dollar to once again attempt to recover its growth currency status."
The dollar index, which measures the dollar's value against a basket of currencies, edged up 0.24 percent to 76.40, pulling well away from a 15-month low of 75.340 set on March 21.
Against the yen, the dollar rose 0.5 percent to about 81.71 yen, pulling away from a record low of 76.25 yen struck on March 17, when the yen jumped on stop-loss buying by retail margin traders and as option barriers were taken out.
(Additional reporting by Natsuko Waki in Tokyo and Ian Chua in Sydney; Editing by Toby Chopra)