Hello! You mentioned your child has dry skin... Well I'm willing to bet she has excema. which my children have have their whole lives. My boys had it worst when they were about your daughter's age, and it has gotten better over time. It is worst during the winter months when the air inside is so dry.
Our doc says to moisturize moisturize moisturize...as a preventive, so we keep them lathered in lotion during the dry seasons. But when the rash appears, we use hydrocortisone cream to get rid of it. When it was particularly bad (about age 3), the doc prescribed elidel, a non-steroidal cream that is better for using over large areas of the body.
And my children always start exactly as you described--on the belly, which then spreads to the arms and sometimes legs and somtimes (not often for them)cheeks. I try to cath the patches before the scratching ing starts, because otherwise the cream burns a little as it is applied on raw skin. It will take several days or more to clear up, especially if it has a foothold.
I would recommmend having the doc look at it to be sure, because there are SO many things that can cause rashes, and because there are so many different treatments, depending on the cause for the rash.
Also, does it tend to get worse and more itchy after baths? For my children it does. Also try using moisturizing soaps and not ones that dry out the skin...and lotion for extremely dry skin.
Let us know what happens! All the other moms had some good suggestions, too, so it will be interesting to see what the rash turns out to be.