GLOBAL MARKETS-Euro falls, Portugal yields up after downgrade

                                
 * Portugal's yields at record high after Moody's downgrade
                                
 * Euro slips; World stocks end five-day winning streak
                                
 * Brent hovers near 32-month high on supply concerns
                                
 
                                
 By Dominic Lau
                                
 LONDON, April 5 (Reuters) - Portugal's bond yields rose to a
euro lifetime high on Tuesday and the euro retreated from a
five-month high against the dollar, hurt by a one-notch
downgrade of Portugal's rating by Moody's Investors Service.
                                
 There were also reports that Portuguese banks may be
threatening to stop buying government bonds to pressure Lisbon
into seeking a financial bailout from the European Union,
following the same path as Greece and Ireland. [ID:nLDE7340J4]
                                
 Brent crude prices pulled back from 32-month highs though
they stayed above $120 a barrel as markets focused on fears that
unrest in producer states in Africa and the Middle East could
disrupt supply, while stocks snapped a five-day winning streak.
                                
 Moody's said it believed Portugal's incoming government
would need to seek financial aid from the European Union as a
matter of urgency. [ID:nL3E7F50X6]
                                
 "Even though Moody's still rates the sovereign two notches
higher than Standard & Poor's, the downgrade is another blow to
sentiment," said Gavan Nolan, an analyst at data monitor Markit.
                                
 Yields on Portugal's 10-year government bonds <PT10YT=TWEB>
rose to 9.033 percent, while Portuguese stocks <.PSI20> fell 0.4
percent, underperforming the broader FTSEurofirst 300 index
<.FTEU3>, which was flat.
                                
 The cost of insuring Portuguese five-year credit default
swaps rose as much as 18 basis points to 598 basis points.
                                
 The euro was down 0.3 percent at $1.4179 <EUR=>, off a
five-month high of $1.4268 hit on Monday, while the dollar was
up 0.1 percent against a basket of major currencies <.DXY>.
                                
 Investors' assessment whether the single currency can make
fresh gains given that players have already positioned
themselves for interest rate rises in the euro zone during 2011
also put pressure on the euro, which has risen 6 percent against
the dollar and 10 percent versus the yen this year.
                                
 "There is a lot of good news priced into the euro already
and (ECB President Jean-Claude) Trichet will have to support the
rate view to keep the positive momentum," said Niels
Christensen, currency strategist at Nordea in Copenhagen.
                                
 The European Central Bank is widely expected on Thursday to
raise rates by 25 basis points from a record low of 1 percent to
tame inflationary pressures <ECBWATCH>.
                                
 <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ 
                                
 Graphics on Thursday's ECB meeting:
                                
                              http://r.reuters.com/kah88r
                                
 Graphic on euro zone credit ratings:
                                
                              http://r.reuters.com/pyh48r
                                
 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
                                
 
                                
 OIL IMPACT
                                
 Federal Reserve Chairman Ben Bernanke said late on Monday
that the recent spike in inflation was unlikely to persist.
                                
 But a sustained higher oil price could pose a serious threat
to the global economic recovery and dampen risk appetite, and
commodity price pressures saw silver <XAG=> rise to a 31-year
high.
                                
 "It's interesting that the recent rally in oil has had
virtually no impact on equities. It was just over a month ago
where equities markets were nervous about the impact of oil
prices on the economy," Deutsche Bank strategist Jim Reid said
in a note.
                                
 "The difference this time is that the rise has likely been
due to decent growth rather than immediate geopolitical
concerns. Nevertheless one would expect the creeping price of
oil to start to get more attention given the recent rally."
                                
 World stocks measured by MSCI All-Country World Index
<.MIWD00000PUS> fell 0.2 percent after hitting six-week highs in
the previous session, while emerging market shares <.MSCIEF> was
flat.
                                
 In Asia, Japan's Nikkei average <.N225> lost 1.1 percent
with investors still wary about the long-term impact of last
month's massive earthquake and tsunami and a resulting nuclear
accident that workers are still struggling to contain.
                                
 Brent <LCOc1> stayed above $120 a barrel, easing 0.5 percent
after hitting a 32-month high of $121.29 on Monday as Nigerian
election delays and a short-lived strike in Gabon added to
supply jitters for a market already on edge over fighting in
Libya and unrest in Yemen, which borders top producer Saudi
Arabia.
                                
 Silver <XAG=> rose to $38.77 an ounce, its highest since
early 1980, while gold <XAU=> was steady at $1,435.85 an ounce.
Copper <CMCU3> ended a two-day losing run, up 0.4 percent.
                                
(Additional reporting by Emelia Sithole and Jessica Mortimer
in London, and Alex Richardson in Singapore; editing by Patrick
Graham)