* Euro retreats from 4-month high as Portugal vote looms
* Bonds gain as delays to rescue fund emerge
* U.S. stocks fall ine early trade on Europe debt concern
* Gold, government bonds gain
(Updates prices, adds U.S. stocks open, adds New York to
dateline)
By Rodrigo Campos and Amanda Cooper
NEW YORK/LONDON, March 23 (Reuters) - Worries that a
political crisis in Portugal could force the debt-laden country
to seek a bailout sent the euro lower on Wednesday and
triggered safe-haven demand for government bonds.
The renewed fears of a euro zone debt crisis drove down
European banking shares and weighed on stocks in New York.
Uncertainty over the longer-term impact of Japan's
earthquake, tsunami and nuclear crisis also drove a bid for
safety, boosting the price of gold.
The cost of insuring Portugal's five-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.
Portuguese 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.
"There's currently a lot of concern on the Portuguese
budget vote and the potential political implication for it. The
fear is that if Portugal failed to agree on austerity measures,
we can potentially see the country forced into the EFSF (rescue
fund)," said Mary Nicola, currency strategist at BNP Paribas in
New York.
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. The decision will likely
come in June. [].
Portugal's political crisis has knocked the euro from its
recent 4-1/2-month highs against the U.S. dollar, although the
slide is expected to be temporary, given the expectation for
the European Central Bank to raise interest rates next month.
The euro <EUR=EBS> was last down 0.6 percent at $1.4110,
having hit a low for the session of $1.4106, according to
trading platform EBS.
The renewed concerns over European debt halted a week-long
tentative rebound in European stocks, while on Wall Street bank
shares fell on concerns over vote by Portugal's parliament.
"The opposition wants to vote no, and if the budget deal
fails, the Socrates government will fall, and hat in hand the
country will go to the EU/IMF," said Peter Boockvar, equity
strategist at Miller Tabak & Co in New York.
The FTSEurofirst 300 <> dipped 0.2 percent and the
MSCI All-Country World index <.MIWD00000PUS> fell 0.3 percent,
down for the first session in five.
The Dow Jones industrial average <> dropped 18.89
points, or 0.16 percent, to 11,999.74. The Standard & Poor's
500 Index <.SPX> fell 6.53 points, or 0.50 percent, to
1,287.24. The Nasdaq Composite Index <> lost 15.98 points,
or 0.60 percent, to 2,667.89.
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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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YEN LITTLE CHANGED
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.
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.
[]
Sterling fell 0.8 percent to $1.6277 <GBP=D4>, hitting the
day's low as UK Chancellor George Osborne released a lower
growth projection for the coming year and increased borrowing
targets from 2011/12 to 2014/15. See []
U.S. Treasuries prices were higher on worries over the cost
of Japan's rebuilding and after warning on tap water. Benchmark
10-year notes <US10YT=RR> were last up 11/32 in price to yield
3.28 percent.
U.S. oil prices <CLc1> edged higher while Brent <LCOc1>
dipped, with prices expected to remain underpinned by violence
in Libya and unrest in Yemen, which neighbors top producer
Saudi Arabia.
Spot gold <XAU=> was up 0.2 percent at $1,432.18 an ounce.
(Additional reporting by Wanfeng Zhou, Richard Leong, William
James, Ikuko Kurahone and Jamie McGeever; Editing by Leslie
Adler)
