* Fed's Plosser says need for tighter policy soon
* S&P's downgrades Portugal; traders watch EU summit
* Australian dollar hits 29-year high versus U.S. dollar
(Recasts, updates prices, adds quotes, details)
NEW YORK, March 25 (Reuters) - The U.S. dollar climbed
against the euro on Friday and is likely to remain buoyant in
the week ahead after a Federal Reserve official said the
central bank will have to tighten monetary policy soon to avoid
sowing the seeds of inflation.
Speaking in New York, Philadelphia Federal Reserve Bank
President Charles Plosser said consumer spending continues to
expand at a "reasonably robust pace" and the labor market is
improving. The overall economy, he said, has gained
"significant strength and momentum" since the summer. For
details, see []
U.S. non-farm payrolls data for March will be released on
Friday. The report will be more closely watched than usual for
a clue as to when U.S. interests rates may rise.
"Strong payrolls data next week would give hawks within the
Fed more ammunition and could raise the risk of an adjustment
to the bank's official statement following its next policy
meeting," said Omer Esiner, chief market analyst at
Commonwealth Foreign Exchange in Washington. "Such a scenario
would add significantly to the dollar's relative yield appeal."
The euro <EUR=EBS> was last down 0.8 percent at $1.4067,
having hit a session low of $1.4055 on trading platform EBS.
The euro is also being pressured in the short run on
concern about a worsening debt crisis in Portugal following the
collapse of the government.
But investors also say that while a pullback in the single
currency is likely, the euro should be supported as long as it
holds above $1.40. Expectations of a euro-zone interest rate
rise next month have helped its resilience.
"For most of the week the market has treated Portugal as an
isolated problem that will not spread to other parts of Europe,
but this sentiment is losing popularity very quickly," said
Kathy Lien, director of currency research at GFT in New York.
PORTUGUESE DEBT
Portuguese debt yields hit new highs on Friday after
Standard & Poor's downgraded the country's credit ratings and
warned it could cut them again. Investors were also
disappointed after EU leaders delayed finalizing a package set
up to bail out failing peripheral economies. []
The euro's failure to break through option barriers around
$1.4250 this week has seen some traders cut back long exposure.
Further resistance lies near $1.4280, the November high.
Support is seen around $1.4036, the high set on March 7.
Technical analysts said a weekly close above $1.4200 would
leave it well positioned for a further rise.
European leaders reached agreement on a new package of
anti-crisis measures at a two-day summit but were forced to
delay increasing their rescue fund. See []
AUSSIE PEAK
The higher-yielding Australian dollar hit a 29-year peak of
against the U.S. currency at $1.0294 <AUD=D4>.
The dollar was up 0.5 percent at 81.40 yen <JPY=>, but any
rise is expected to be capped by reported offers at 81.30-45
yen, with resistance also coming from the 21-day moving average
around 81.49 yen.
Net long positions in favor of the yen rose to the tune of
34,525 contracts, up from 30,230 the prior week, data from the
Commodity Futures Trading Commission showed on Friday, despite
efforts by Japanese authorities to weaken the yen.
But the change was mostly a drop in short contracts. Short
positions fell 4,414 contracts to 17,959 contracts while long
contracts rose just 119 to 52,484 contracts.
Yen open interest fell 2,650 contracts to 112,051
contracts.
(Additional reporting by Steven C. Johnson; Editing by Kenneth
Barry)
(Reporting by Nick Olivari and Wanfeng Zhou)
