* Euro eases from 4-1/2-month high versus dollar
* Portugal's parliament says 'No' to austerity budget
* Sterling falls after UK growth forecast
(Adds details, updates prices)
NEW YORK, March 23 (Reuters) - The euro fell on Wednesday,
hurt by fears debt-ridden Portugal will require a bailout after
its parliament rejected the minority government's austerity
measures.
The vote is likely to cause the government's
collapse.
Prime Minister Jose Socrates has said he will resign if the
plan fails to clear parliament and Portugal would probably be
forced to seek foreign aid.
Socrates is to meet President Anibal Cavaco Silva later
Wednesday. For more, see: [].
The euro extended declines on the news and fell to a
session low, although it recovered as investors debated how
much of the news was already priced in.
"This raises the likelihood that Portugal will require a
bailout, but the question is about how much the market has
already factored this in," said Brian Dolan, chief strategist
at Forex.com in Bedminster, New Jersey. "I'd say it's been
factored in to a significant degree, given the run-up we've
seen in Portuguese yields and CDS."
Earlier, an International Monetary Fund spokeswoman said
Portugal had not requested a loan program backed by the
institution, dismissing speculation Lisbon was in talks with
the fund.
The euro <EUR=EBS> was last down 0.6 percent at $1.4105
after hitting a low for the session of $1.4099, according to
trading platform EBS.
"The euro is holding up pretty well," Dolan said. "The
feeling is the periphery is covered by the bailout fund and the
core is in good shape."
Dolan suggested euro/dollar will still test $1.44-45 in the
short run.
Most investors are betting any losses in the single
currency should be limited amid expectations of rising euro
zone interest rates.
The euro was already down from a 4-1/2-month high against
the dollar, set in the previous session, ahead of the
Portuguese vote, after failing to break through options
barriers in the $1.4250 area. Analysts said the euro could dip
below $1.40 in the short term before rising toward $1.4280, the
November high.
Adding to bearish euro sentiment was a document showing
European leaders will decide how to increase their bailout fund
only in June, not this week. []
The yield on Irish government bonds soared to euro-lifetime
highs on uncertainty over whether a European summit later this
week will agree on an improvement of the terms on bailout
loans. []
Sterling was last down 0.8 percent to $1.6242 <GBP=D4>. It
touched the day's low as Britain lowered its growth projections
for the coming year and increased borrowing targets.
[]
DOWNSIDE LIMITED
The prospect of higher interest rates, combined with a
sense that European policymakers have the will to resolve the
debt crisis, was expected to keep the euro supported around
$1.40, analysts said.
"Economically, the euro zone is showing clear signs of
recovery, politically the politicians are heading in the right
direction and expectations of the ECB raising rates favors the
euro over the U.S. dollar," said Thanos Papasavvas, head of
currency management at Investec Asset Management, which manages
over $10 billion in currency funds.
"We hold an overweight position in the euro and will be
looking to buy on any dips if the euro corrects," he added.
The dollar was down 0.1 percent against the yen at 80.85
<JPY=>, with markets still wary of intervention by authorities
to curb yen strength. A fall below the 80 to 80.50 area could
see officials return to the market to sell the Japanese
currency.
(Additional reporting by Steven C Johnson)
(Reporting by Nick Olivari and Wanfeng Zhou; Editing by Dan
Grebler)
