* Euro eases from 4-1/2-month high versus dollar
* Investors await Portugal budget vote
* Sterling falls after UK growth forecast
(Adds comment, details, updates prices, change byline,
dateline from previous LONDON)
By Wanfeng Zhou
NEW YORK, March 23 (Reuters) - The euro fell on Wednesday
on concerns a political crisis in debt-ridden Portugal could
force the government to seek financial aid, though currency
losses should be limited, given expectations of rising euro
zone interest rates.
The euro had eased from a 4-1/2-month against the dollar on
Tuesday after failing to break through options barriers in the
$1.4250 area. Analysts said the euro could dip below $1.40 in
the short term, before rising toward $1.4280, the November
high.
Portugal's parliament was expected to reject austerity
measures, setting the stage for the possible collapse of the
minority Socialist government a day before a European summit.
Portuguese bond yields rose as investors priced in increased
risk of a debt restructuring. For details, see
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"There's currently a lot of concern on the Portuguese
budget vote and the potential political implication for it,"
said Mary Nicola, currency strategist at BNP Paribas in New
York.
"The fear is that if Portugal failed to agree on austerity
measures, we can potentially see the country forced into the
EFSF," she said, referring to the European Financial Stability
Facility, a program set up to bail out failing peripheral
economies.
The euro <EUR=EBS> was last down 0.6 percent at $1.4110
after hitting a low for the session of $1.4106, according to
trading platform EBS.
Adding to bearish sentiment was a document showing European
leaders will only decide on how to increase their bailout fund
in June, not this week. []
In a sign the euro zone debt crisis was more on investors'
minds, Irish two- and ten-year government bond yields hit euro
lifetime highs.
Sterling fell 0.8 percent to $1.6277 <GBP=D4>, hitting the
day's low as Britain lowered its growth projections for the
coming year and increased borrowing targets. []
DOWNSIDE LIMITED
The prospect of higher interest rates, combined with a
sense that European policymakers have the will to resolve the
debt crisis was expected to keep the euro supported around
$1.40, analysts said.
"Economically, the euro zone is showing clear signs of
recovery, politically the politicians are heading in the right
direction, and expectations of the ECB raising rates favors the
euro over the U.S. dollar," said Thanos Papasavvas, head of
currency management at Investec Asset Management, which manages
just over $10 billion in currency funds.
"We hold an overweight position in the euro and will be
looking to buy on any dips if the euro corrects".
A European Central Bank official warned that keeping rates
very low amounted to an expansionary policy that risked
spurring excessive risk-taking. []
The dollar was little changed against the yen at 80.99
<JPY=>, with markets wary of intervention by authorities to
curb yen strength. A fall below the 80 to 80.50 area could see
officials return to the market to sell the Japanese currency.
(Additional reporting by Jessica Mortimer in London; editing
by Jeffrey Benkoe)
