* Portuguese parliamentary vote jitters knock euro
* Yen trapped by wariness over intervention
* Pound supported after inflation data, BoE minutes awaited
By Hideyuki Sano and Naomi Tajitsu
TOKYO/HONG KONG, March 23 (Reuters) - The euro slipped on
Wednesday, retreating from a 4 1/2-month high against the dollar
as worries about debt problems in Portugal and Ireland sapped
appetite for the currency and its near-term outlook is seen
hinging on whether Lisbon's make-or-break attempt to garner
parliamentary support for its austerity measures will succeed.
Portugal's political crisis has quashed the latest rally in
the euro, which climbed to $1.4249 earlier this week, but some
analysts said any selling in the euro if the government fails
was unlikely to extend far below $1.41, given expectations EU
leaders are close to agreeing the details of a debt-rescue fund,
while euro zone interest rates are widely seen rising next
month.
Lisbon's parliament will vote on the government's latest
austerity measures on Wednesday and Prime Minister Jose Socrates
has threatened to resign if the opposition fails to approve the
measures, setting the stage for a potential collapse of his
minority government a day before a European summit where leaders
are due to discuss steps to deal with debt problems.
"The Portugal situation has put a spanner in the (euro's
rally) with the suggestion the government may fail today, and
the implication would be the resulting uncertainty would push
the country towards a bailout," said Robert Ryan, senior G10
currency strategist at BNP Paribas in Singapore.
"But would that come as a big surprise to the market? I
don't think so ... We could see a dip below $1.41 but I don't
think we will go to much further. The ECB has made it clear that
regardless of the situation with the periphery, they will go
ahead with a hike in April."
Also causing some uncertainty about the health of the euro
zone were rumours that Allied Irish Banks (AIB) , which
has been effectively nationalised, was planning to miss a coupon
payment, driving the premium that investors demand to hold Irish
two-year bonds to a euro-era high.
AIB said in a statement that it would pay the coupon due on
Wednesday as scheduled.
The euro traded at $1.4160 , 0.2 percent lower on the
day. A further slide was blocked by suspected bids from model
funds in the $1.4140/50 region, while an option barrier at
$1.4250 capped the euro's advance.
On charts, the euro was poised for a pull-back to support at
$1.4030/50 -- intraday peaks from earlier this month -- but only
a drop below the $1.40 level would suggest a peak had been put
in place and its solid uptrend was reversing.
The euro has rallied nearly 6 percent against the dollar so
far this year, and is hovering on the threshold of its highest
since January 2010. Given ongoing debt problems plaguing weaker
euro zone countries, some analysts anticipate a retreat in the
euro in the coming months, adding that current levels offered a
good chance to lock in profits.
"Given how strongly the euro has performed in the last few
weeks, uncertainty about Portugal could give people a reason to
take profits, and possibly sell it, so we would expect some
downward pressure from here," said Chris Gothard, head of FX for
Brown Brothers Harriman in Hong Kong, adding that a slide to
$1.4050 in the near term was possible.
The European Central Bank is widely expected to raise its
benchmark rate by 25 basis points from a record low 1.0 percent
next month. Some in the market believe the euro's yield
advantage over the dollar will provide some cushion for the
currency, while others caution that monetary tightening while
weaker euro zone countries were suffering may spell trouble for
the single currency.
Sterling traded at $1.6362, holding near a 14-month
high hit on Tuesday after stronger-than-expected British
inflation data increased the chances of an interest rate rise
within the next few months. Traders said the pound may rise as
far as $1.65 if Bank of England minutes, due later in the day
show a more hawkish bias among policymakers.
Investors were also anticipating the UK government's 2011
budget, to be announced on Wednesday, to see if it it will
bolster faltering growth without compromising on a tough
austerity programme to get public finances back in order.
YEN STALLED
The dollar slipped a touch on the day to 80.90 yen,
but stuck close to 81.00 yen region as traders turned cautious
about buying the currency after the Group of Seven (G7)
countries sold it last week in their first joint intervention in
more than a decade.
The G7 may have sold around 530 billion yen ($6.5 billion)
last Friday as they intervened to weaken the currency, data from
the Bank of Japan showed on Tuesday, far less than the
approximately 2 trillion yen indicated by market talk.
Market participants were wary of Japanese authorities
returning to sell the yen aggressively, particularly below 80.50
yen, where they came in last Friday. At the same time, few in
the market expected big gains in the dollar, adding that a rise
back to around 83 yen, where the dollar traded before Japan's
devastating earthquake, was unlikely.
"The G7 may have wanted to push the dollar/yen back to its
levels before its tumble last week but they won't try to push it
back to its levels before the earthquake. They'll leave it to
the markets from here," said Ayako Sera, market strategist at
Sumitomo Trust in Tokyo.
Many in the market anticipate more downside in the dollar in
the coming days. Some traders say a slide under 80 yen is
possible, although a sharp fall below 79 yen before the end of
the month was unlikely due to wariness about possible
intervention.
On the upside, heavy exporters' offers are already lined up
above 82.00 yen, with more seen around 83.00 yen, and an options
trader at a Japanese bank on Tokyo said he suspected the balance
of dollar/yen flows would be tilted towards dollar selling
during the last stretch of Japan's financial year, ending this
month, as Japanese exporters are likely to sell.
The last week of March commonly sees a mix of dollar flows
including exporter selling and buying by investors related to
overseas investments in the new year. Still, market participants
have been speculating that such buying demand may be limited
this year given the recent drop in Japanese equities, which
could sap domestic investors' risk appetite.
(Additional reporting by Masayuki Kitano and Reuters FX analyst
Rick Lloyd in Singapore; Editing by Ramya Venugopal and Richard
Borsuk)
