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FOREX-Dollar hits 3-week high as remarks by Fed's Powell suggest less dovish bent

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* Fed's Powell strikes hawkish tone in 1st testimony

* Traders brace for German, Italian political developments

(Recasts lead; adds comment and FX table; updates prices) NEW YORK, Feb 27 (Reuters) - The dollar hit a three-week peak on Tuesday after Federal Reserve Chairman Jerome Powell's remarks before U.S. lawmakers suggested a willingness to adopt a more hawkish stance if needed to prevent the economy from overheating, even as he said the central bank would stick with gradual interest rate increases. Powell, in his first public appearance since being sworn in as chairman earlier this month, pledged to "strike a balance" between the risk of an overheating economy and the need to keep growth on track. In response to a question after presenting his congressional testimony, Powell said that if the Fed got behind and the economy overheated, the central bank would have to raise rates faster. The dollar index, which measures the greenback against a basket of six other major currencies, has climbed 2.5 percent since hitting a three-year low more than a week ago. It was last up 0.6 percent at 90.356, after earlier reaching a three-week peak of 90.498. "We felt that the testimony provides insight into a Fed that may pivot to a more hawkish platform, particularly if it continues to see encouraging data points," said Marvin Loh, senior global market strategist at BNY Mellon in Boston. "The markets, which had been mostly unchanged prior to the question-and-answer session, have since taken this hawkish tone to heart," he added. Some of the headwinds the U.S. economy faced in previous years have turned into tailwinds, Powell said, noting recent fiscal policy shifts and the global economic recovery.

The Fed is expected to approve its first rate increase of 2018 at its next policy meeting in March, when it will also provide fresh economic projections and Powell will hold his first news conference. Fed policymakers still anticipate three rate increases this year. BNY's Loh said he did not think Powell intended to present a hawkish view, but that the Fed chairman gave investors a peek into a new U.S. central bank that could be the least dovish in two decades. In late trading, the dollar was up 0.44percent against the Japanese yen at 107.36 yen. The euro, meanwhile, fell to a three-week low against the dollar and last traded down 0.7 percent at $1.2231. The euro zone currency could be subject to potential swings in price, analysts said, as Italians prepare to vote in a national election on Sunday, and the leading political parties in Germany decide on a coalition deal that could secure Angela Merkel a fourth term as chancellor. James Chen, head of research at Forex.com in Bedminster, New Jersey, said a breakdown in the euro below $1.2200 would be a key technical event, which should target the next support level of $1.2075.

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Currency bid prices at 3:29PM (2029 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change

Session

Euro/Dollar EUR= $1.2233 $1.2316 -0.67% +1.98% +1.2346 +1.2222 Dollar/Yen JPY= 107.3400 106.9200 +0.39% -4.73% +107.6700 +106.7900 Euro/Yen EURJPY= 131.31 131.70 -0.30% -2.86% +132.1800 +131.3100 Dollar/Swiss CHF= 0.9388 0.9378 +0.11% -3.64% +0.9416 +0.9359 Sterling/Dollar GBP= 1.3914 1.3965 -0.37% +2.96% +1.3996 +1.3859 Dollar/Canadian CAD= 1.2756 1.2679 +0.61% +1.42% +1.2761 +1.2668 Australian/Doll AUD= 0.7793 0.7854 -0.78% -0.10% +0.7868 +0.7793

ar

Euro/Swiss EURCHF= 1.1487 1.1553 -0.57% -1.73% +1.1562 +1.1487 Euro/Sterling EURGBP= 0.8789 0.8817 -0.32% -1.06% +0.8844 +0.8787 NZ NZD= 0.7238 0.7302 -0.88% +2.15% +0.7304 +0.7236

Dollar/Dollar

Dollar/Norway NOK= 7.8687 7.8223 +0.59% -4.12% +7.8784 +7.8070 Euro/Norway EURNOK= 9.6263 9.6338 -0.08% -2.26% +9.6630 +9.6037 Dollar/Sweden SEK= 8.2282 8.1491 +0.28% +0.32% +8.2358 +8.1379 Euro/Sweden EURSEK= 10.0681 10.0398 +0.28% +2.31% +10.0940 +10.0385

(Reporting by Saqib Iqbal Ahmed and Gertrude Chavez-Dreyfuss Editing by Jonathan Oatis and Leslie Adler)