* Euro retreats from 4-month high as Portugal vote looms
* Portuguese debt under pressure
* Brent crude edges down below $116 a barrel
* Gold, government bonds gain
By Amanda Cooper
LONDON, March 23 (Reuters) - Investors grew increasingly
uneasy over the euro zone's finances ahead of a parliamentary
vote in Portugal on Wednesday that could bring down the
government, denting the euro and tempering an equities rally.
Uncertainty over the impact of Japan's earthquake, tsunami
and nuclear crisis weighed on Asian stocks and helped support
perceived safe-haven assets such as gold, government bonds and
the Swiss franc.
The premium investors demand to hold Portuguese debt rather
than benchmark German bonds rose for a third day while the cost
of insuring the country's 5-year debt against default hit its
highest since January, reflecting the growing belief that Lisbon
will follow Greece and Ireland in seeking emergency funding if
parliament rejects a new series of austerity measures.
Prime Minister Jose Socrates says he will resign if the plan
fails, setting the stage for the possible collapse of his
minority Socialist government a day before a key European
summit.
Portugal's political crisis has knocked the euro from its
recent 4-1/2 month highs against the dollar, although the slide
is expected to be temporary if EU leaders can agree on the
details of a debt-rescue fund.
"If these measure are not agreed, it seems more and more
likely that Portugal will need some kind of support," said
Charles Diebel, head of market strategy at Lloyds Bank.
"Is this already reflected in the price? To a large degree,
yes it is, but there are also good causes for concern that this
is not going to stop here."
The Portuguese/German 10-year government bond yield spread
<PT10YT=TWEB> <DE10YT=TWEB> was last at 450 basis points, 7 bps
wider on the day, while yields on the benchmark German Bund fell
for the first time in a week, by 1 basis point to 3.24 percent.
Five-year Portuguese credit default swaps (CDS) rose 8 basis
points to 538 basis points, their highest since Jan. 11,
according to data monitor Markit, raising the cost to protect 10
million euros of exposure to Portugal's bonds to 538,000 euros.
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Yen intervention: http://link.reuters.com/sub68r
Dollar index weekly trendline: http://r.reuters.com/jum68r
U.S. trading volume slowdown http://r.reuters.com/gyp68r
Japan earthquake in graphics http://r.reuters.com/fyh58r
U.S. crude futures chart: http://link.reuters.com/maq68r
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EURO DAMPENED
With the gap widening between peripheral euro zone yields
and German yields, the euro <EUR=> fell 0.1 percent against the
dollar to $1.41184 and 0.3 percent against the yen <EURJPY=>.
Also weighing on the euro were rumours that Allied Irish
Banks <ALBK.I>, which has been effectively nationalised, was
planning to miss a coupon payment, driving the premium that
investors demand to hold Irish 2-year bonds to a euro-era high.
AIB said in a statement it would pay the coupon due on
Wednesday as scheduled.
The yen held steady, hugging a tight range close to 81 per
dollar, yet traders were wary that the Bank of Japan might step
in again if the dollar fell below 80.50, following Friday's rare
market intervention by major central banks to curb the yen.
European shares reversed early losses to edge higher,
pushing the pan-regional FTSEurofirst 300 index <> up 0.2
percent to 1,109.93 points, after having rallied by 3.5 percent
from last week's 3-1/2 month lows.
S&P 500 futures <SPc1> fell 0.3 percent, indicating a weaker
start on Wall Street, following the decline in Asian stocks,
which came under pressure from uncertainty over the human and
economic impact of Japan's triple disaster, which has left over
20,000 dead or missing.
Underlining the continuing risks, Japanese authorities
advised against allowing infants to drink tap water in Tokyo due
to raised radiation levels, and the United States became the
first nation to block some food imports from Japan.
[]
The MSCI All-Country World index <.MIWD00000PUS> fell 0.2
percent, and remains more than 3.5 percent below February's
2-1/2 year highs.
The VDAX-NEW volatility index <.V1XI> -- a measure of
options volatility in German stocks used as a proxy to measure
investor risk appetite -- rose for the first time in a week.
Oil was steady, after gaining on Tuesday as violence in
Libya and unrest in Yemen, which neighbours top producer Saudi
Arabia, fuelling worries of supply disruptions.
Brent crude <LCOc1> was up 0.1 percent at $115.78 a barrel.
"The market is still very vulnerable to further disruptions
to supply," said Tetsu Emori, a Tokyo-based commodities fund
manager at Astmax Investments. "People are quite nervous about
the current turmoil spreading to Saudi Arabia."
Spot gold <XAU=> was up 0.2 percent at $1,432.12 an ounce.
(Additional reporting by William James in London, Alejandro
Barbajosa and Alex Richardson in Singapore; Editing by Hugh
Lawson)
