* Euro rises in relief rally after Portugal auction
* Spain, Italy debt auctions, ECB on Thursday
* Markets hopeful of boost to euro zone lending fund (Adds quote, updates prices)
NEW YORK, Jan 12 (Reuters) - The euro rose against the dollar for a third day on Wednesday though gains were still seen as short-lived, with a Portuguese debt sale failing to stem fears on the funding prospects of peripheral euro zone countries.
Rising risk appetite boosted the euro, which climbed above $1.31 and broke above its 200-day moving average at $1.3071 on trading platform EBS.
Lisbon's debt auction saw healthy demand, with the average yield at the 10-year sale off, compared with a previous one in November, though 3-year bonds were sold at a significantly higher yield. For details, see [ID:nLDE70B0BE]
"Markets are far from convinced that the crisis has begun, let alone ended," said Alan Wilde, head of fixed-income and currency at Baring Asset Management in London. Baring Asset Management oversees $50 billion in assets.
"Temporarily, the ECB has steadied markets using some judicious buying of sovereigns with the widest spreads, and the successful Portugese auctions have resulted in a lift for the euro," said Wilde.
But analysts said the auction results would do little to change the view that the government in Lisbon will continue to struggle and may turn to the European Union and International Monetary Fund for a bailout.
"If we look at the 2014 issue, the yield was over 100 basis points higher than the last auction, which is not a good sign for Portugal's funding costs going forward," said Ronald Simpson, director of currency research at Action Economics in Tampa, Florida. "It keeps the door open (because) at some point they're going to need to formally ask for assistance."
Attention now turns to Spain and Italy, which will sell debt in auctions on Thursday that will also be closely watched for signs of contagion. Analysts expect the sales to go without a major hitch, but at elevated costs.
The euro
Analysts said further euro buying probably would not take the currency much further than $1.3150 in the near term. Near-term support lies at about $1.2794, the 61.8 Fibonacci percent retracement of its rally from June to November.
But a move above the 200-day SMA is seen as a first step toward improving sentiment toward the currency. The euro-dollar has now tested the 200-day simple moving average three times since November 29, according to EBS data.
If it can hold gains above that level, technical analysts will view it as long-term support. Conversely if it falls below and continues to fall, that level will become long-term resistance.
RETESTING 4-MONTH LOW
Also bolstering the euro were comments from euro zone sources that finance ministers were likely to consider raising the effective lending capacity of the currency bloc's rescue fund next week in hopes of calming jittery markets. [ID:nLDE70A1RM]
This follows Japan's promise to support an upcoming bond sale by the fund, the European Financial Stability Facility.
Sentiment toward the single currency will remain subdued on persistent concerns that the debt financing problems affecting Portugal and Spain may spread, with some seeing Belgium in the firing line due to political instability.
Traders still expect the euro to retest its four-month low around $1.2860 set on Monday, with a break likely opening the door to a fall toward $1.2645 and $1.2590 in the coming weeks.
The European Central Bank meets on Thursday and investors will watch if the bank signals further steps to help ease pressure on peripheral bonds.
Against the yen, the euro was up 0.8 percent at 108.90 yen
The euro rose to a session high against the Swiss franc
after the Swiss National Bank Vice Chairman Thomas Jordan said
there are signs the Swiss economy will slow in 2011, though he
still saw growth of about 1.5 percent