* Euro gains on rate hike expectations
* Stocks buoyant, led by emerging markets
* Portugal in focus
By Jeremy Gaunt, European Investment Correspondent
LONDON, April 5 (Reuters) - Differing prospects for interest
rates sent the euro to a 14-month high against the dollar and
extended the yen's steep decline on Wednesday as investors
prepared for a new tightening cycle in the euro zone.
World shares ticked higher, with emerging markets leading
the way -- a reflection of renewed interest in the sector
prompted in part by higher interest rate expectations in
developed markets. []
Focus was also on battered euro zone peripheral economy
Portugal, which was to sell six- and 12-month treasury bills.
The European Central Bank meets on Thursday and is widely
expected to raise its benchmark interest rate by 25 basis points
from a record low 1.0 percent to curb inflation pressures.
The prospect of the euro zone's first rise in rates since
July 2008 pushed the euro to its highest level against the
dollar since late January 2010.
It rose as high as $1.4292 <EUR=> and also hit a high of
121.969 yen <EURJPY=R>, its strongest since May 2010.
The Bank of Japan also meets on Thursday but if anything it
will ease monetary coNditions rather than tighten, adding to the
attraction of higher-yielding currencies such as the euro.
Investors, meanwhile, extended gains on stock markets,
including lifting European shares to a four week high.
World stocks as measured by MSCI <.MIWD00000OOPUS> were up
0.2 percent. Emerging market stocks <.MSCIEF> gained 0.6
percent. They are up more than 10 percent since a mid-March low.
Europe's FTSEurofirst 300 <> gained 0.1 percent.
"Optimism continues to rule even though there are still ...
clear and present dangers. Portugal needs to find some financing
fast," said Philippe Gijsels, analyst at BNP Paribas Fortis
Global Markets.
"The market will continue to be well supported as long as
the U.S. Federal Reserve continues to put liquidity into the
system. Only when the Fed stops printing will we be able to see
the real strength of the economy and markets. And then markets
may be disappointed."
PORTUGAL
Analysts were expecting Portugal to manage to sell its six-
and 12-month T-bills, albeit at a higher cost than previously.
Local banks have threatened to stop buying government bonds
unless the country seeks a foreign loan soon and the tender will
test lenders' appetite to support shorter-term state borrowing.
[]
"Given the fact that it's bills, it might go OK, but it is
an interesting test for the periphery," one trader said.
Moody's cut the credit ratings of seven Portuguese banks on
Wednesday, pointing to the lenders' weakened financial state and
the likelihood a government struggling with debt would limit
support for them.
The decision, including downgrades by one or more notches of
the senior debt and deposit ratings of seven banks, and
downgrades of the standalone credit assessment for five of those
banks, comes after Moody's cut Portugal's sovereign rating on
Tuesday.
(Additional reporting by Jessica Mortimer, Atul Prakash and
Patrick Graham; Editing by Catherine Evans)
