* S&P's downgrades Portugal; traders watch EU summit
* Australian dollar hits 29-year high versus U.S. dollar
* US fourth-quarter GDP revised up (Updates prices, adds quotes, details)
By Wanfeng Zhou
NEW YORK, March 25 (Reuters) - The euro slipped against the U.S. dollar on Friday and could remain under pressure in the short run on concern about a worsening debt crisis in Portugal following the collapse of the country's government.
While a pullback is likely, traders said the euro should be supported as long as it holds above $1.40. Expectations of a euro-zone interest rate rise next month have helped the single currency's resilience despite worries about heavily indebted Portugal and Spain.
The euro
Portuguese debt yields hit new highs on Friday after Standard & Poor's downgraded the country's credit ratings and warned it could cut them again. Investors were also disappointed after EU leaders delayed finalizing a package set up to bail out failing peripheral economies. [ID:nL3E7EO3OJ]
"For most of the week the market has treated Portugal as an isolated problem that will not spread to other parts of Europe, but this sentiment is losing popularity very quickly," said Kathy Lien, director of currency research at GFT in New York.
The euro's failure to break through option barriers around $1.4250 this week has seen some traders cut back long exposure. Further resistance lies near $1.4280, the November high. Support is seen around $1.4036, the high set on March 7.
Technical analysts said a weekly close above $1.4200 would leave it well positioned for a further rise.
"However a failure to establish above the 1.4200 level could result in a large bearing reversal in the pair, as the level represents a descending channel top going back to June of 2009," said Brendan McGrath, senior analyst at Wester Union Business Solutions in Victoria, British Columbia.
European leaders reached agreement on a new package of anti-crisis measures at a two-day summit but were forced to delay increasing their rescue fund and acknowledged they faced new threats from a government collapse in Portugal. See [ID:nLDE72O009]
IFR Markets reported that European clearing house LCH.Clearnet said Portugal's bonds will not be eligible in it its repo clear baskets from next Monday. [ID:nIFR7yFMR4]
The higher-yielding Australian dollar hit a 29-year peak of
against the U.S. currency at $1.0294
The Aussie dollar was boosted by an increase in risk appetite, with high Australian interest rates enhancing its appeal for global investors.
US JOBS DATA
The single currency has risen in recent weeks on expectations the European Central Bank will raise interest rates as early as April.
Such a move would further move the yield differential in favor of the euro, as the U.S. Federal Reserve last week reiterated its pledge to keep interest rates -- now at virtually zero -- at very low levels for an extended period.
Data on Friday showing the U.S. economy grew more rapidly than previously estimated in the fourth quarter boosted optimism about the recovery and supported the greenback.
The dollar was up 0.2 percent at 81.13 yen
Investors' attention now shifts to March U.S. nonfarm payrolls data, due out next Friday. Economists polled by Reuters are expecting job gains of about 190,000. [ECI/US]
"If we see another month of strong payrolls, that's a signal that the Fed may start to shift its language at its next meeting. If that's the case, then we can see some real underlying support for the dollar begin to build," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
Analysts said the yen could gain in the coming week as inflows ahead of the Japanese fiscal year-end on March 31 pick up. Japanese exporters usually sell the dollar ahead of the financial year. (Additional reporting by Steven C. Johnson; Editing by Kenneth Barry)