* Euro little changed as euro zone debt worry lingers
* Euro bounces off key level after Portugal bond sale (Updates prices, adds details, adds quote)
NEW YORK, March 9 (Reuters) - The euro was little changed on Wednesday as initial optimism after Portugal's successful bond sale faded amid ongoing concern about euro zone debt problems.
In less than a week, the euro first gained strongly on expectations of a euro-zone interest rate hike next month but then fell back as investors considered what higher borrowing costs will mean to peripheral nations already struggling under high debt burdens.
The common currency was last flat on the day at $1.3907,
recovering from a low of $1.3855
Portugal's cost of issuing two-year debt rose to its highest since it joined the euro, highlighting the problems facing peripheral euro zone countries and keeping alive concerns that it will need an international bailout. [ID:nLIS002583]
The currency bounced off a key technical level.
In addition to the technical support level, traders cited talk the European Central Bank was checking Greek and Irish government bond prices. But as London traders left their desks and liquidity dried up, the euro continued to struggle.
"Euro/dollar bounced off of technical support at $1.3860 to trade $1.3920 on talk of ECB debt buying," said Brad Bechtel, managing director at Faros Trading, LLC in Stamford, Connecticut. "The Portuguese debt auction was read as OK to slightly good."
The euro had hit a four-month high of $1.4036 on Monday, buoyed by the euro zone rate outlook, but then has struggled until today.
"The elevated cost of borrowing for Portugal and Spain is seen as unsustainable and could result in the need for additional EU/IMF-funded bailouts," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange, Inc. in Washington. "Inability of policymakers in the euro zone to agree on measures to address the crisis is keeping the single currency broadly pressured."
EU SUMMIT ON FRIDAY
The market's focus is consequently on a euro zone summit on Friday, where 17 heads of state are expected to agree on the next cautious steps in their bid to quell the region's debt crisis, even as they are unlikely to announce a major breakthrough. [ID:nLDE7270VF]
Friday's summit is likely to only lay the ground for a meeting of all 27 EU leaders in Brussels on March 24-25 when they hope to agree on a "comprehensive package" of measures they hope may draw a line under the crisis.
Still, the euro is seen supported by favourable interest rate differentials, with many expecting the ECB to retain a hawkish bias despite the debt problems in peripheral member nations. That is in sharp contrast to U.S. monetary policy which looks set to remain loose for some time.
The dollar was up 0.2 percent against the yen at 82.81 yen
Fund managers have been buyers of dollar/yen in recent
weeks, according to UBS, although the bank said choppy U.S.
yields have limited gains in the currency pair.
For a graphic on the euro/dollar against Portuguese debt
yields: http://r.reuters.com/vat48r
(Reporting by Nick Olivari; Editing by Kenneth Barry)