* Euro retreats from 4-month high as Portugal vote looms
* Sterling falls on UK growth projections
* Europe debt concern weighs on U.S. stocks
* Gold, bonds up on safety bid
(Updates prices, adds oil quote, Egypt market, U.S. home sales
data, German bonds, silver)
By Rodrigo Campos
NEW YORK, March 23 (Reuters) - Worries that a political
crisis in Portugal could force the debt-laden country to seek a
bailout sent the euro lower on Wednesday and triggered
safe-haven demand for U.S. and German government bonds.
The renewed fears of a euro zone debt crisis drove down
European banking shares and weighed on stocks in New York.
Uncertainty over the longer-term impact of Japan's
earthquake, tsunami and nuclear crisis also drove a bid for
safety, boosting the price of gold and driving silver to the
highest price since 1980.
The cost of insuring Portugal's five-year debt against
default hit two-month highs, reflecting the growing belief that
Lisbon will follow Greece and Ireland in seeking emergency
funding if parliament rejects a new series of austerity
measures.
Portuguese Prime Minister Jose Socrates has threatened to
resign if the package is rejected in a vote expected Wednesday,
meaning his minority Socialist government could collapse a day
before a key European summit.
"There's currently a lot of concern on the Portuguese
budget vote and the potential political implication for it. The
fear is that if Portugal failed to agree on austerity measures,
we can potentially see the country forced into the EFSF" rescue
fund, said Mary Nicola, currency strategist at BNP Paribas in
New York.
Hopes that this week's European summit would yield a
decision on how to increase the effective capacity of the euro
zone bailout fund were dashed after the release of a draft
document prepared for the meeting. The decision will likely
come in June. [].
Portugal's political crisis has knocked the euro from its
recent 4-1/2-month highs against the U.S. dollar, although the
slide is expected to be temporary, given the expectation for
the European Central Bank to raise interest rates next month.
The euro <EUR=EBS> was last down 0.4 percent at $1.4144,
having hit a low for the session of $1.4105, according to
trading platform EBS.
The renewed concerns over European debt halted a week-long
tentative rebound in European stocks and took a toll on Wall
Street.
"The opposition wants to vote no, and if the budget deal
fails, the Socrates government will fall, and hat in hand the
country will go to the EU/IMF," said Peter Boockvar, equity
strategist at Miller Tabak & Co in New York.
A plunge in sales of new U.S. single-family homes in
February to the lowest level since 1963 also weighed on Wall
Street, as the data from the U.S. Commerce Department suggested
the housing market slide was deepening. []
And an objection by the Federal Reserve to Bank of
America's <BAC.N> plans to boost its dividend weighed on bank
shares.
The Dow Jones industrial average <> dropped 26.83
points, or 0.22 percent, to 11,991.80. The Standard & Poor's
500 <.SPX> fell 7.06 points, or 0.55 percent, to 1,286.71. The
Nasdaq Composite <> lost 16.72 points, or 0.62 percent, to
2,667.15.
The FTSEurofirst 300 <> dipped 0.2 percent and the
MSCI All-Country World index <.MIWD00000PUS> fell 0.4 percent,
down for the first session in five.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
U.S. trading volume slowdown http://r.reuters.com/gyp68r
Japan earthquake in graphics http://r.reuters.com/fyh58r
U.S. crude futures chart: http://link.reuters.com/maq68r
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YEN LITTLE CHANGED
The yen stayed in a tight range close to 81 per dollar, yet
traders were wary that the Bank of Japan might step in again if
the dollar fell below 80.50, following Friday's rare market
intervention by major central banks to curb Japan's currency.
Underlining the continuing risks in Japan, authorities
advised against allowing infants to drink tap water in Tokyo
due to raised radiation levels, and the United States became
the first nation to block some food imports from Japan.
[]
Sterling fell 0.7 percent to $1.6253 <GBP=D4>, hitting the
day's low as UK Chancellor George Osborne released a lower
growth projection for the coming year and increased borrowing
targets from 2011/12 to 2014/15. See []
U.S. Treasuries prices were higher on worries over the cost
of Japan's rebuilding and after the warning on tap water.
Benchmark 10-year notes <US10YT=RR> were last up 11/32 in price
to yield 3.28 percent.
The Bund future <FGBLc1> was 33 ticks higher at 122.35,
extending early gains. Germany sold 3.4 billion euros of
10-year bonds, attracting greater demand than at a previous
sale thanks to the risk-averse mood in markets. []
U.S. oil prices <CLc1> edged higher while Brent <LCOc1>
dipped, with prices expected to remain underpinned by violence
in Libya and unrest in Yemen, which neighbors top producer
Saudi Arabia.
"Yemen is a very hot topic now. It is not that important to
the oil market but unrest in the region gives enough
psychological support to prices," Andy Sommer, energy market
analyst with EGL, said.
Spot gold <XAU=> was up 0.7 percent at $1,440.07 an ounce.
Silver <XAG=> was at $36.80 an ounce at 1439 GMT, just below
the session high of $36.81 an ounce, from $36.34 late in New
York on Tuesday.
Egyptian stocks <.EGX100> closed 9 percent lower in the
first day of trading on the Cairo since Jan. 27, after closing
dur to the political turmoil that ousted Hosni Mubarak last
month.
(Additional reporting by Angela Moon, Wanfeng Zhou, Richard
Leong, Joe Rauch, and Ikuko Kurahone; Editing by Leslie Adler)
