* Euro retreats from 4-month high as Portugal vote looms
* Bonds gain as delays to rescue fund emerge
* Brent crude edges down below $116 a barrel
* Gold, government bonds gain
(Updates with detail, comment, refreshes prices
By Amanda Cooper
LONDON, March 23 (Reuters) - The euro slid on Wednesday as
investors were disappointed over delays to fine-tuning a euro
zone bailout fund, while bonds rallied as Portugal scrambled to
approve tough budget cuts.
On the equity markets, renewed concern about the euro zone
debt crisis undermined European banking stocks while S&P 500
futures <SPc1> were down 0.1 percent, indicating a weaker start
on Wall Street.
Uncertainty over the longer-term impact of Japan's
earthquake, tsunami and nuclear crisis boosted perceived safe
havens such as gold, government bonds and the Swiss franc. The
yen was steady but traders were wary of possible renewed
intervention to keep the Japanese currency in check.
The premium investors demand to hold Portuguese debt rather
than benchmark German bonds rose for a third day. The cost of
insuring the country's 5-year debt against default hit two-month
highs, 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 has threatened to resign if the
package is rejected in a vote on Wednesday, meaning his minority
Socialist government could collapse a day before a key European
summit.
"If these measures 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."
Any hopes that this week's European summit would yield a
decision on how to increase the effective capacity of the euro
zone bailout fund were dashed after the release of a draft
document prepared for the meeting. []
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, given the expectation for the
European Central Bank to raise interest rates next month.
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.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
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
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
YEN HOLDS STEADY
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=>.
"Euro/dollar will be sensitive to news coming from Portugal
and the rising possibility that Prime Minister Socrates is
forced to resign," said Roberto Mialich, currency strategist at
Unicredit in Milan.
"This will put the debt crisis story back under the
spotlight, the day before the EU leaders meeting tomorrow. But
(a likely) ECB rate hike in April should contain the negative
news for the euro," he said, adding that the euro is unlikely to
go any lower than $1.4050.
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 Japan's
currency.
European shares pared gains after the draft conclusions to
the EU summit showed leaders would not decide on how to
strengthen the euro zone bailout fund until June.
[] That pushed down banking stocks such as Bank of
Ireland <BKIR.I>, Societe Generale <SOGN.PA> and Santander
<SAN.MC>, leaving the FTSEurofirst 300 <> flat.
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.
Underlining the continuing risks in Japan, 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.
[]
Oil prices retreated slightly but were expected to remain
strong as violence in Libya and unrest in Yemen, which
neighbours top producer Saudi Arabia, fuelled worries of supply
disruptions.
"While this transition is going on, it can only threaten
oil supplies and increase uncertainty - both things that will
keep oil prices strong," Christopher Bellew with Bache
Commodities said. Brent crude <LCOc1> was down 0.1 percent at
$115.53 a barrel.
Spot gold <XAU=> was up 0.2 percent at $1,432.12 an ounce.
(Additional reporting by William James, Ikuko Kurahone and
Jamie McGeever in London; Editing by Susan Fenton)
