* C$ hits C$1.0304 vs US$, or 97.05 U.S. cents * US$ rallies on strong home sales, consumer confidence * Bernanke testimony in focus * Investors worried over Italy election uncertainty By Solarina Ho TORONTO, Feb 26 The Canadian dollar hit its weakest level against the U.S. dollar in eight months on Tuesday, following stronger-than-expected U.S. data and congressional testimony by Federal Reserve Chairman Ben Bernanke. The U.S. dollar rallied following data that showed new U.S. single-family home sales surged to their highest in 4-1/2 years in January, indicating further recovery in the U.S. housing sector. Consumer confidence also picked up more than expected in February as Americans shrugged off worries over fiscal policy and tax increases. "The preset statements by Bernanke - they seemed to be overshadowed by suspiciously strong U.S. data that came out. They're pretty phenomenal figures," said Greg Moore, FX Strategist at TD Securities. The greenback erased some of those gains as Bernanke spoke to the U.S. senate. He strongly defended the U.S. central bank's bond-buying stimulus before Congress and urged lawmakers to avoid sharp spending cuts set to go into effect on Friday. The Canadian dollar traded as low as C$1.0304 to the U.S. currency, or 97.05 U.S. cents, its weakest level since June 29, 2012. This compared with Monday's North American session close at C$1.0276, or 97.31 U.S. cents. The Canadian dollar's performance was mixed against a basket of major currencies, outperforming its commodities-linked counterparts, the Australian and New Zealand dollars, but underperforming the euro and sterling. "The trend is still for further softness in our view. So whatever impact today, if it does see a little bit of a lift from Bernanke's Q&A session ... we could return to the negative CAD trend later on this week particularly with the GDP ... coming up," said Moore. The Canadian dollar has been under pressure in recent weeks following dismal domestic data. Traders are now looking ahead to fourth-quarter GDP data on Friday. "The expectation is for the market to see sub-trend GDP growth, so I wouldn't look for too much of a bid tone between now and Friday," said Matt Perrier, managing director of foreign exchange sales at BMO Capital Markets. Adding to the negative tone were worries that an uncertain outcome from last weekend's election in Italy, the euro zone's third-largest economy, will fragment the government and endanger the country's current economic reform program, reigniting the region's debt crisis. Government bond prices rose across the curve, with the price of a two-year Canadian government bond climbing 1.5 Canadian cents, to yield 1.008 percent. The benchmark 10-year bond was up 13 Canadian cents, yielding 1.852 percent.