(Corrects first paragraph to show euro failed to retest a
recent four-month peak)
* Euro little changed as euro zone debt worry lingers
* Euro bounces off key level after Portugal bond sale
(Updates prices, adds details, comment, byline)
By Steven C. Johnson
NEW YORK, March 9 (Reuters) - The euro failed to retest a
recent four-month peak against the dollar on Wednesday, and
analysts said persistent worries about the fiscal health of
several euro zone countries may limit further gains.
The euro hit a four-month high above $1.40 this week as
markets began pricing in an April euro zone interest rate hike.
But it retreated a day ago amid concern about the ability of
indebted countries to withstand higher borrowing costs.
The currency last traded at $1.3898 <EUR=EBS>, unchanged
from late Tuesday. It bounced off technical support in the
$1.3860 area but was still off the day's high of $1.3942.
In an auction Wednesday, Portugal saw its cost for issuing
two-year debt soar to its highest level since it joined the
euro in 1999, underscoring fears that it will need a bailout.
For details, see []
If the European Central Bank lifts interest rates, it could
impair the ability of countries such as Portugal, Greece and
Ireland to boost growth. ECB President Jean-Claude Trichet
signaled last week the bank could hike rates in April.
"I don't trust the euro," said Richard Franulovich, senior
currency strategist at Westpac. "The ECB is playing a dangerous
game here and could end up forcing Portugal and Spain into the
arms of (the euro zone rescue fund). I don't think it's a
coincidence that spreads are blowing out again."
The dollar was unchanged at 82.64 yen <JPY=EBS>. Fund
managers have been dollar buyers in recent weeks, according to
UBS, although the bank said choppy U.S. yields have limited
gains against the yen in recent days.
The euro was flat at 114.93 yen <EURJPY=EBS> while sterling
was up 0.3 percent at $1.6205 <GBP-D4>.
The 17 euro zone heads of state are expected to agree at
Friday's summit on the next steps to quell the region's debt
crisis, though markets expect a major announcement to wait
until a March 24-25 meeting of all 27 European Union leaders.
[]
"Inability of policymakers in the euro zone to agree on
measures to address the crisis is keeping the single currency
broadly pressured," said Omer Esiner, chief market analyst at
Commonwealth Foreign Exchange in Washington.
Still, the euro is seen supported by favorable interest rate
differentials, with many expecting the ECB to retain a hawkish
bias despite the debt problems in peripheral member nations.
That is in sharp contrast to U.S. monetary policy which looks
set to remain loose for some time.
The Fed holds its monthly policy meeting next week, and
while the U.S. jobless rate has declined in recent months, most
analysts think it's probably too early to expect the Fed to
signal a shift toward tighter monetary policy.
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For a graphic on the euro/dollar against Portuguese debt
yields: http://r.reuters.com/vat48r
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(Reporting by Steven C. Johnson and Nick Olivari; Editing by
Kenneth Barry)
