(Reuters) - The euro steadied against the dollar on Wednesday as investors focused on a gloomy assessment of the U.S. economy from Federal Reserve Chairman Ben Bernanke, that left the door open for more monetary easing and dampened demand for the greenback. Analysts said after choppy trading on Tuesday, moves in the euro were likely to be muted before Bernanke's second testimony to U.S. lawmakers later in the day. He was expected to reiterate his message from Tuesday's testimony, in which he was downbeat on the U.S. economy but offered no explicit outline of stimulus steps. After dropping below $1.22 on Tuesday, as investors who had positioned for a direct hint of further quantitative easing (QE) were disappointed, the euro pared losses to last trade down 0.1 percent at $1.2278. The dollar .DXY was flat against a basket of currencies at 83.048, off last week's two-year high of 83.829. "Bernanke did not give any clear signal of policy easing but left the door open to more easing if required. It's a reiteration of Fed policy from the last meeting but has not really provided fresh impetus to market direction," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi. Traders cited selling by Asian central banks around $1.2290 that capped euro gains, and talk of bids at $1.2250-60. With market focus temporarily shifting from the euro zone debt crisis, many strategists said the dollar could drift lower in the near term. QE is considered dollar-negative because it boost the supply of greenbacks in the system. But the bigger trend was still for a weaker euro given concerns about high Spanish and Italian bond yields and with many in markets doubting Spain can avoid a full-scale bailout. "We might see a continuation of this euro bounce in the near term given increasingly stretched short positioning on some crosses, but we suspect that continued signs of economic malaise in Europe and stress in European fixed income markets will keep the single currency under pressure over the medium term," Citi strategist Andrew Cox said in a note. Bank of Tokyo Mitsubishi's Hardman said the euro was likely to test $1.20 if the debt crisis intensified. Safe haven Germany will sell up to 5 billion euros of two-year bonds on Wednesday at an auction that may produce a negative yield, while Spain faces a bigger test in an auction of 3 billion euros of paper on Thursday. Sterling hit a session low of $1.5607 after Bank of England minutes said new credit measures might prompt policymakers to reconsider their decision to reject cutting interest rates, though not for several months. EURO DIPS VS YEN The euro hit a session high of 97.32 yen before fading to 97.09 yen, down 0.2 percent on the day and moving back toward a six-week low of 96.17 yen touched on Monday. The dollar was steady at 79.05 yen, holding above a one-month low of 78.68 yen hit on Monday. Traders said the dollar was likely to face pressure from selling by Japanese exporters on any move above 80 yen, with the July 5 high of 80.09 yen seen as major resistance. Investors shrugged off minutes from the Bank of Japan's June 14-15 policy meeting released on Wednesday, at which some members said Japanese sentiment could suffer if Europe's debt problems led to a rise in the yen. The Australian dollar dipped 0.1 percent to US$1.0299, but has been well supported since central bank minutes published on Tuesday showed policymakers saw no need to cut rates earlier this month. It earlier hit a session high of US$1.0326, capped by resistance at the July 5 high of US$1.0330.

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