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TOKYO, July 19 (Reuters) The dollar stayed near a record low against the euro and a 26-year trough versus sterling on Thursday as Federal Reserve Chairman Ben Bernanke said woes in the U.S. housing market could worsen.

In a testimony before Congress on Wednesday, Bernanke repeated that inflation is the Fed's top concern but said weakness in the housing sector would likely crimp growth in the coming quarters.

The Fed has also lowered its forecasts for U.S. economic growth for 2007 and 2008.

''Bernanke's comments underscored the seriousness of the subprime mortgage troubles while the Fed revised down its economic forecasts. There's no reason to buy the dollar under these circumstances,'' said the head of FX sales at a European bank.

The dollar dipped briefly after news that an underground electricity transformer exploded in midtown Manhattan on Wednesday, but a U.S. Homeland Security official said there was no indication it was linked to terrorism.

Yen weakness against high-yielding currencies was helping to keep the dollar steady against the yen, but both were underperformers in a market in which the preference remains for currencies with prospects of rising interest rates, traders said.

Market reaction was muted to China's gross domestic product for the second quarter, which grew 11.9 percent from a year earlier, above a 10.8 percent growth forecast. Data also showed Chinese consumer prices rose 4.4 percent in June from a year ago, exceeding a 3.5 percent rise forecast.

The euro was down 0.06 percent at $1.3795 after reaching its strongest on Wednesday since its launch in 1999, hitting a record $1.3834 on electronic trading platform EBS.

Sterling was also down 0.03 percent at $2.0520 after hitting a 26-year peak of $2.0548 on the Reuters dealing system on Wednesday.

The dollar was up 0.03 percent at 121.90 yen The dollar's trade-weighted index against six major currencies was 80.437, after falling as low as 80.227 on Wednesday, the weakest since April 1995.

The Australian dollar traded at $0.8768, within sight of an 18-year peak of $0.8789 touched on Wednesday.

A trader at a big Japanese bank said while the dollar's broadly weak trend was firmly in place, many funds were now taking profits on the euro's rise, while the yen was getting a respite from Japanese investors booking profits on the rise in the Australian dollar and the euro against the Japanese currency.

Against the yen, the euro was trading down 0.04 percent at 168.12 yen and the Australian dollar was down 0.04 percent at 106.89 yen ''Although the dollar remains pressured, selling related to the subprime woes may have come too far, prompting players to unwind long positions in the euro and sterling in the near term,'' the trader said.

The U.S. currency fell across the board on Wednesday, hit by news that two Bear Stearns hedge funds had little value after betting heavily on subprime loans.

While the Fed was expected to hold interest rates steady, the markets expect the Bank of England and the European Central Bank to raise rates in September, supporting the pound and the euro.

Traders expect few surprises from Bernanke's testimony later in the session on U.S. monetary policy at the Senate Banking Committee.

The Fed will also issue minutes from its June 27-28 policy meeting later on Thursday. At that meeting, the Fed kept the federal funds rate unchanged at 5.25 percent, the eighth straight meeting the Fed has held its target for the benchmark overnight lending rate steady.

REUTERS GT VV1112