FOREX-Euro falls after Portugal downgrade, China rate hike

* Euro pulls back further from 5-month high vs dlr

* Portugal downgrade sparks threats to stop buying debt

* China hikes rates by 25 basis points; the aussie dented

* Sterling rallies as data adds to rate hike chances
(Recasts, adds quote, updates prices, adds details)

NEW YORK, April 5 (Reuters) – The euro fell against the
dollar for a second straight day on Tuesday, extending declines
from a five-month high, knocked by a ratings downgrade of
Portugal and a rise in Chinese interest rates.

The decision by China to hike interest rates by 25 basis
points, the fourth rate increase since October, also dented
higher-yielding currencies like the Australian
dollar.[ID:nBJD000260].

Sterling gained after strong data boosted the chances of a
UK rate hike.

Moody’s cut Portugal’s sovereign debt rating by one notch
[ID:nLDE7340AM], saying debt problems on the euro zone
periphery may prevent the European Central Bank from raising
rates an anticipated three times this year. (ECBWATCH: Quote, Profile, Research)

Reports that Portugal’s biggest banks threatened to stop
buying government’s debt, instead urging the caretaker
administration to seek a short-term loan, also put pressure on
the single currency.

The euro is expected to stay stuck in its recent range
ahead of the ECB’s policy meeting on Thursday, after Monday’s
rally to a five-month high stalled ahead of resistance around
$1.4280. That coincides with November’s high of $1.4283 and a
trendline drawn from the July 2008 record high.

“With the looming ECB decision and press conference the
euro has been well supported, but is likely now entering a
range that will hold until Thursday,” said Camilla Sutton,
senior currency strategist at Scotia Capital in Toronto. “For
new highs to be reached from here, we will need to hear a
fairly hawkish ECB President Trichet.”

Widespread expectations for a 25 basis point rate hike by
the ECB on Thursday continued to support the euro, with
reported bids from $1.4140 seen limiting losses.

Adrian Schmidt, currency strategist at Lloyds, said the
euro “is still in an uptrend, though people are wary of taking
the euro higher ahead of the ECB meeting.

“I think it will break $1.4280 but we may need to see a
narrowing in peripheral yield spreads (over German Bunds)
before it makes much progress above there,” he said.

Traders said a break to the topside would expose large
option barriers at $1.4350 and $1.4400, expiring around the
middle of April. They also highlighted a large option at
$1.4100, expiring on Friday, which could influence price
action.

The euro was down 0.3 percent at $1.4183 (EUR=: Quote, Profile, Research), pulling
back from a five-month high hit on Monday.

Further resistance was at $1.4374, the 76.4 percent
retracement of the euro’s slide from November 2009 to June
2010.

“There is a lot of good news priced into the euro already,”
said Niels Christensen, currency strategist at Nordea in
Copenhagen, and ECB President Jean-Claude Trichet “will have to
support the rate view to keep the positive momentum.”

The Australian dollar traded down as low as $1.0288
(AUD=D4: Quote, Profile, Research), taking it further from its post float high touched on
Monday. The Australian dollar was floated in December 1983.

Given trade links, the Aussie can be the most sensitive to
moves by China to tighten monetary policy because Australian
exports could fall. The aussie last traded down 0.4 percent at
$1.0320.
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For a graphic on Chinese interest rates click on

http://r.reuters.com/veh88r
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STERLING SHINES; FED MINS AHEAD

An unexpected leap in UK services sector activity to a
13-month high buoyed the pound, which rose as much as 1 percent
versus the euro as the market moved closer toward pricing in a
UK rate hike in June. [ID:nSLA4FE7SE] (BOEWATCH: Quote, Profile, Research)

“Sterling is the main mover after the PMI data was vastly
higher than expected, and there may be a little more potential
for UK rate expectations to be pulled up further,” Lloyds’
Schmidt said.

Sterling was last up 0.8 percent against the dollar
(GBP=D4: Quote, Profile, Research) at $1.6261.

Later on Tuesday, minutes of the Federal Reserve March 15
meeting will be scrutinized for hints on whether U.S.
policymakers may be edging toward a tighter monetary stance.
Some Fed officials have struck a hawkish tone recently, while
others have remained dovish.

Against the yen, the dollar rose 0.3 percent to 84.29 yen
(JPY=: Quote, Profile, Research), edging closer to a six-month peak set on Friday. A
200-day moving average at around 83.55 is now seen acting as
support.
(Reporting by Nick Olivari; Editing by Leslie Adler)

FOREX-Euro falls after Portugal downgrade, China rate hike