* ECB bites bullet, raises interest rates by 0.25 pct
* Euro off 14-mth high vs dlr, 11-mth peak vs yen
* Euro vulnerable to paring back of future rate rise chances
(Adds reaction to ECB decision, quote)
By Neal Armstrong
LONDON, April 7 (Reuters) - The euro was steady on Thursday
after the European Central Bank raised rates for the first time
since July 2008, but was off its multi-month peaks with
investors edgy that expectations for more tightening this year
could be dampened.
The ECB raised its benchmark rate by 25 basis points to 1.25
percent, as expected, with some having the view the euro may
weaken if President Jean-Claude Trichet, at a news conference at
1230 GMT, does not sound hawkish enough to keep alive
expectations for another two rate hikes by year-end.
Some say the euro could fall to as low as $1.4200 with all
eyes on the tone of Trichet's introductory statement at the news
conference. That assumes significance after last month's
reference to "strong vigilance" regarding price pressures was
widely interpreted as signalling a rate hike was imminent.
The single currency has risen more than 3 percent since
Trichet's comments on March 3. He will need to make reference to
"close monitoring" of price pressures in his remarks on Thursday
to signal further rate rises are likely later in the year.
"The key will be Trichet's tone in the subsequent conference
and any extension of his hawkish rhetoric from the March meeting
should keep the euro supported," said Chris Walker, strategist
at UBS.
The euro was down 0.3 percent on the day at $1.4280 <EUR=>,
unchanged after the ECB rate decision, but off a 14-month high
of $1.4350 hit in on Wednesday. Options traders noted demand for
short-term upside strikes in the $1.4400 region, as market
players looked to protect against a further rise in the euro.
Against the yen, the euro fell one percent on the day
<EURJPY=R>, hitting day's low around 121.24 yen, with traders
citing real money selling of euros. It was last down at 121.58.
"The market is fully expecting Trichet to remain (hawkish)
so one would surmise the risk is for a correction lower in the
euro," said one trader, who reported strong interest to sell the
euro against the dollar at $1.4350 and versus the yen in the
122.50 area.
Lutz Karpowitz, currency analyst at Commerzbank said there
was a risk euro bulls could be disappointed by any neutral
comments from Trichet. "I would rather bet on the downside,
$1.4200 can easily be reached," he said.
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Click [] to see fx trade ideas for ECB decision
ECB in graphics: http://r.reuters.com/kah88r
The euro zone's debt struggle: http://r.reuters.com/hyb65p
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SPANISH AUCTION
The currency market showed little reaction to Portugal's
move to seek a bailout from the European Union, with the size of
the package expected to be up to 80 billion euro ($114 billion).
[]
Fears Spain may be the next on the market's radar for its
debt problems eased somewhat after Madrid comfortably sold 4.1
billion euros of a new three-year bond.
Expectations for higher euro zone rates contrasted with
uncertainty in the United States over when the Federal Reserve
may begin to tighten policy. The U.S. economy remains too
fragile for the Fed to begin raising rates, Atlanta Fed
President Dennis Lockhart said on Wednesday. []
The Bank of England kept rates unchanged, as expected.
Sterling <GBP=D4> slipped against the dollar after the decision
as some had positioned for the slim chance of a rate hike.
[]
The dollar was up 0.2 percent at 75.649 <.DXY> against a
basket of currencies.
The Bank of Japan kept monetary policy steady as expected and
signalled its readiness to ease policy further, bucking a global
trend of central banks withdrawing excess liquidity put in place
during the financial crisis. []
The dollar rose to a six-month high of 85.54 yen in Asia,
almost 10 yen above its record low of 76.25 yen hit in March,
days after Japan's devastating earthquake. It fell back to trade
around 85.15 yen in European trade.
The Australian dollar scaled a fresh 29-year peak against
the greenback of $1.0489 <AUD=D4> before running into options
selling. It was aided by data showing the Australian economy
added a higher-than-expected 37,800 jobs in March.
(Additional reporting by Brenda Goh and Anirban Nag, editing by
Chris Pizzey and Susan Fenton)
