Import the image into a graphic symbol or movieclip symbol and use timeline tweening to make it fade. If you do not put any stop() command in the timeline it will loop scontinuously. If you need help learning how to do timeline tweening, serach Google for "Flash timeline tween tutorial" or similar terms.
There are multiple ways to achieve this. You can use AS2 or AS3 or as Ned mentioned timeline tweened. Some step by step guide for one of such ways are mentioned here which you can reuse are: http://www.entheosweb.com/Flash/fade_in.asp & http://www.flashvault.net/tutorial.asp?ID=198