FOREX-U.S. dollar edges higher against euro; Aussie dollar gains

* Euro weaker on Russian sanction fears

* US dollar hits technical resistance against euro

* Australian dollar gains on higher than expected inflation (Adds quote, details, updates prices)

By Karen Brettell

NEW YORK, July 23 (Reuters) - The U.S. dollar rose to eight-month highs against the euro on Wednesday as worries over tougher sanctions on Russia and their potential impact on fragile euro zone growth weighed on the single currency.

The dollar could only post modest gains, however, as attempts to push the euro below a key technical level at $1.3450 failed.

The greenback had taken out some technical barriers on Tuesday after U.S. inflation data showed prices increasing, though the increase was more subdued than some had expected.

Dollar gains were more subdued on Wednesday with no major economic releases and before the Federal Reserve is due to meet next week.

"The euro/dollar has broken some higher-profile chart levels, but there hasn't been convincing follow-through," said Bob Lynch, head of currency strategy at HSBC in New York.

Further escalation of tensions between Russia and Ukraine could weigh further on the euro if more trade sanctions are enforced on Russia.

"Europe is directly exposed to Russia by trade - Germany in particular - so sanctions could potentially have a negative impact on the euro," said Ian Stannard, a currency strategist at Morgan Stanley.

The next U.S. focus, meanwhile, will be next week's Fed meeting, where investors will be watching to see if a recent spate of stronger employment and inflation data shifts the economic outlook of central bank members.

"There's a possibility we'll see something a little bit different from the Fed. The last Fed decision was before the last monster payrolls report and another month of inflation data hovering around 2 percent," said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets in New York.

The Australian dollar was the largest mover of the major currencies, gaining 0.69 percent to US$0.9455 after a higher-than-expected reading of a key gauge of underlying inflation in June in Australia dented market speculation of future rate cuts.

The U.S. dollar meanwhile gained 0.17 percent against the British pound to US$1.7034, after Bank of England minutes failed to boost expectations of an interest rate hike by year-end.

The dollar index, which tracks the greenback against a basket of six major currencies, was steady on the day at 80.714.

(Additional reporting by Jemima Kelly in London; Editing by W Simon and Nick Zieminski)