* Dollar index inches lower
* Yellen testifies before Senate Banking Committee
* Dollar falls against yen, franc
By Sam Forgione
NEW YORK, Feb 27 (Reuters) - The dollar edged lower on Thursday, erasing gains from a day earlier, as market participants looked toward remarks by U.S. Federal Reserve Chair Janet Yellen on the economy and monetary policy in testimony before the Senate Banking Committee.
The yen and the Swiss franc, meanwhile, rose on jitters over the chance of Russian intervention in Ukraine, which added to concerns about global emerging markets and drove capital towards the world's traditional safe-haven currencies.
Russia's ruble hit a five-year low against the dollar on Thursday. The dollar hit a high against the ruble of 36.2670, the highest since late February 2009, as tensions escalated in Ukraine after Russian President Vladimir Putin ordered drills by his armed forces to test combat readiness in western Russia, near the border with Ukraine.
The dollar last traded up 0.32 percent versus the ruble at 36.14. The dollar was also up 5 percent against Ukraine's hryvnia, hitting a record high of 10.6 hryvnia.
Market participants also had their eyes on Yellen. The Fed chair's opening comments to the Senate panel, however, were identical to prepared testimony she delivered to a House of Representatives panel earlier this month,
Yellen acknowledged U.S. economic data had been largely soft since she last spoke, but said she wasn't certain how much of the weakness was due to cold weather.
Minutes from the Fed's January policy meeting, released recently, showed that several policymakers sought to emphasize a predictable trimming of the central bank's monthly bond-buying program.
"The Fed is transparently confused, and it shows," said Axel Merk, president and chief investment officer of Merk Investments in Palo Alto, California.
He said investors were "starting to question" whether Yellen would continue along the path of cutting the Fed's stimulative asset purchases at its meetings.
Traders, meanwhile, waited to see what stance Yellen would adopt in a question and answer session that was continuing as of 11:50 a.m. EST.
The dollar gained last week on the Fed minutes. A reduction in the Fed's asset purchases is viewed to be positive for the dollar since it could drive up interest rates and prompt greater investment flows into the United States.
The dollar index, which tracks the U.S. dollar against a basket of major currencies, was last down 0.03 percent at 80.40 in morning trading. That marked a drop from the previous day's gains, when it held near a two-week high.
The dollar was down against the euro, which last traded up 0.18 percent at 1.3711.
Traders largely shrugged off Labor Department data showing initial claims for U.S. state unemployment benefits increased 14,000 last week to a seasonally adjusted 348,000.
Other reports showed orders for long-lasting U.S. manufactured goods excluding transportation unexpectedly rose last month, as did a gauge of business spending plans. Both had little effect on the dollar.
The dollar was last down 0.18 percent against the yen at 102.16. The dollar was also last down 0.26 percent against the Swiss franc, which traded at 0.88825.
The franc hit its highest to the euro in 10 months in early European trade, rising 0.2 percent against the euro also buffetted early on by signs German inflation may have slowed in February.
A broad flight into currencies like the yen and franc, that tend to draw investors in times of market stress or risk, also saw the yen gain 0.7 percent against the European single currency and half a percent against the dollar.
Those moves may in part also reflect uncertainty over a big decision that the European Central Bank will face next week, on whether to take further action to spur growth.
They also come after the most severe fall in years for the value of China's yuan, reflecting worries that an economy that has propped up global growth for a decade is stuttering.
"This is definitely a risk aversion play although I wouldn't put it mainly down to events in Ukraine," said Peter Kinsella, strategist with Commerzbank in London. "Chiefly this is concern over emerging markets as a whole and in essence China."