FOREX-US dollar falls ahead of Bernanke testimony

* Bernanke expected to confirm policy will stay loose

* Euro targets 2011 high of $1.3862 and $1.3950 area

* Sterling hits 13-month high vs dollar on rate view (Updates prices, adds quote, changes byline, dateline, previous LONDON)

By Wanfeng Zhou

NEW YORK, March 1 (Reuters) - The U.S. dollar fell to a fresh 3-1/2-month low against major currencies and could weaken further should Federal Reserve Chairman Ben Bernanke reiterate his support for loose monetary policy in his testimony on Tuesday.

Expectations the Fed will lag other major central banks in raising interest rates have pressured the U.S. currency, pushing the euro close to a 2011 high and sterling to its strongest level in more than a year.

The euro could rise above resistance around $1.3862, its yearly high, setting the stage for a rally toward $1.40, if Bernanke stays cautious about the economy and relatively relaxed about inflation at his semi-annual appearance before the Senate Banking Committee, starting at 10 a.m. (1500 GMT)

"If Bernanke remains cautious on the prospects of U.S. recovery signaling that the Fed will maintain its accommodative monetary policy for the foreseeable future, risk currencies could rally further," said Boris Schlossberg, director of currency research at GFT in New York.

The dollar index <.DXY>, which tracks its performance against a basket of major currencies, fell to 76.735, its weakest level since early November.

The euro rose 0.1 percent to $1.3812 , near a one-month high of $1.3857 hit on trading platform EBS on Monday.

Traders reported stop losses above $1.3860, which is around euro/dollar's 2011 high set on Feb. 2 and a break above which would mark the highest since early November. Further upside targets include $1.3948, around the 76.4 percent retracement of the euro's fall from November to January, and $1.3957, the 200-week moving average.

The euro will likely stay supported ahead of an interest-rate meeting by the European Central Bank on Thursday, at which it may signal a willingness to raise rates. See [ID:nLDE71R1Y8]

"The market has increasingly built in a shift in stance, the risk is that the ECB fails to deliver and the euro weakens," said Camilla Sutton, senior currency strategist at Scotia Capital in Toronto. "However we expect that the fundamentals have shifted enough that President (Jean-Claude) Trichet will not disappoint."

YEN, FRANC DIP

The Swiss franc and yen slipped as concern about North Africa and the Middle East eased in the absence of any significant escalation of tensions and oil prices stayed below last week's highs.

Uncertainties in the region remained, however, and analysts said that if tensions escalate investors could again buy the Swiss franc and yen, the two currencies which have tended to benefit most when market players have sought safety.

The dollar rose 0.5 percent to 82.20 yen , with traders citing heavy buying of dollar/yen by Japanese exporters. The euro rose 0.7 percent to 113.59 yen .

Against the Swiss franc, the dollar was up 0.3 percent at 0.9316 and the euro rose 0.4 percent to $1.2875 .

Sterling rallied to a 13-month high against the dollar of $1.6330, after stronger-than-expected UK housing data stoked expectations the Bank of England will raise interest rates before the Fed.

The Canadian dollar rose to a three-week high versus the U.S. currency, helped by high oil prices and broad weakness in the greenback. The U.S. dollar fell as low as C$0.9684 , before rebounding to C$0.9728 after the Bank of Canada kept its main interest rate at 1 percent and gave no signal it plans to push it up soon. [ID:nLDE7201U4] (Additional reporting by Jessica Mortimer in London; Editing by Chizu Nomiyama)