* Dollar index edges down 0.1 percent
* Focus on Powell's testimony due later on Tuesday
* U.S. economic indicators this week also seen as key
* Traders brace for German, Italian political developments
SINGAPORE/TOKYO, Feb 27 (Reuters) - The dollar eased on Tuesday as investors awaited a slew of economic data this week and Federal Reserve Chairman Jerome Powell's testimony, which could determine whether the U.S. currency's recovery from a three-year low has more room to run.
The dollar's index against a basket of six major currencies fell 0.1 percent to 89.728. The greenback, however, is still 1.7 percent above a three-year trough near 88.25 set on Feb. 16.
The focus this week is Powell's first congressional testimony, at a time when investors are nervous over the pace of U.S. monetary tightening as it unwinds years of stimulus.
Powell will testify on the central bank's semi-annual report on monetary policy and the economy on Tuesday, before the U.S. House of Representatives' Financial Services Committee.
Powell will probably sound optimistic on the economic outlook, but stress patience in assessing whether inflation will head higher, said Roy Teo, investment strategist for LGT Bank in Singapore.
"The dollar is unlikely to get a major lift after Powell's speech," Teo said.
Teo added that this is especially the case given the prevailing market expectations for the Fed's preferred inflation measure, the core personal consumption expenditures (PCE) price index, due on Thursday.
Economists polled by Reuters expect the core PCE to increase 1.5 percent year-on-year in January, which would be the same as December's pace and still some way off from the Fed's 2 percent target.
If that turns out to be the case, the hurdle for the Fed to upgrade its projections for the number of interest rate hikes this year at its policy meeting in March will be relatively high, LGT Bank's Teo said.
This week is crammed with U.S. economic data on consumer confidence, revised fourth-quarter growth, manufacturing and personal income and spending.
Against the yen, the dollar was little changed at 106.95 yen , and was 1.2 percent above a 15-month low of 105.545 yen set on Feb. 16.
The euro edged up 0.2 percent to $1.2339, with investors seen cautious about taking big positions this week ahead of political events in Europe.
Italians vote in a national election on Sunday, while the leading political parties in Germany will decide on a coalition deal that could secure Angela Merkel a fourth term as chancellor.
"It is clear that the risk of something happening is still there. In particular, should the centre right win the election then the battle over who will be prime minister and choose the member of the government will be key," said Simon Derrik, chief currency strategist at BNY Mellon, referring to the Italian election.
"Also interesting to note is how muted the market response to the election has so far been. The only sign that the market has begun to take note has been the slight widening seen in the key Italy/Germany spreads. Perhaps the market isnt paying enough attention to the risks here," he added.
The bond yield spread between the two countries stood at 145 basis points (bps), up from its 1 1/2-year low around 125 bps touched earlier this month but way below last year's peak above 210 bps.
Euro zone inflation data due later this week further added to a nervous outlook for euro trading.
On Monday, European Central Bank President Mario Draghi spoke before the European Parliament and struck an optimistic tone about the euro zone economy. He said, however, that inflation has yet to show more convincing signs of a sustained upward adjustment. (Reporting by Masayuki Kitano and Tomo Uetake; Editing by Jacqueline Wong and Kim Coghill)