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* U.S. dollar supported by upbeat economic data
* Euro slips but bolstered by central bank demand
* Portugal borrowing costs soar, Spain issuance on horizon
By Neal Armstrong
LONDON, Jan 5 (Reuters) - The dollar held firm on Wednesday, bolstered by further evidence that the U.S. economic recovery is becoming self-sustaining, though its gains against the euro were slowed by central bank demand for the single currency.
A recent series of economic data has raised hopes for a sustainable U.S. recovery and lent support to the dollar. The latest such numbers on Tuesday showed new orders received by U.S. factories rose unexpectedly in November.
"The underlying story is that the dollar does alright on decent data, but with the Fed indicating in its minutes that policy will stay easy, rates will go up elsewhere before they go up in the U.S.," said Adrian Schmidt, currency strategist at Lloyds Banking Group.
Latest minutes from the Federal Reserve's Open Market Committee's discussion on monetary policy were released on Tuesday, showing the Fed was content to stick with an easing path. [ID:nN04231505]
Market players said the dollar's rise and a drop in commodities this week had been driven in part by position unwinding, with investors trimming back some bets made before year-end.
"The move over the past two weeks was somewhat exaggerated, having taken place in thin liquidity. With liquidity coming back on stream, the markets are now reassessing some of the moves," said Sue Trinh, strategist at RBC Capital Markets.
The dollar index, which measures the greenback's value
against major currencies, was up 0.4 percent at 79.755 <.DXY>.
The dollar was close to flat at 82.11 yen
EURO DIPS
The euro dipped 0.6 percent to $1.3210
"Debt problems in the euro zone are well flagged now and the euro is range-trading. There isn't much confidence in the euro but clearly there are central bank buyers towards 1.30," said Schmidt at Lloyds.
The euro made a brief dip below $1.30 at the end of November before registering a strong bounce to around $1.3500. It has held well within that range over recent weeks.
Traders said news the Swiss National Bank has stopped accepting Irish government bonds as collateral in its money market operations dented sentiment towards the euro. [ID:nLDE7040DQ]
Portugal has come under increasing pressure from international debt markets on concerns it may be forced to follow Greece and Ireland and seek an EU/IMF bailout. Demand for its Treasury bills was solid on Wednesday though yields continued to rise. [ID:nLIS002539]
Market focus was shifting to Spanish issuance for 2011, the first tranche of which comes up for auction next week.
"It's not out of the question that speculators could target Spain in the same way they targeted Ireland," said Stephen Gallo, head of Market Analysis at Schneider Foreign Exchange.
"I don't think ringfencing issues for Spain are priced in to the euro/dollar rate at the moment. There's no catalyst for a weaker euro yet but the negative cycle is building," he said.
The Australian dollar slipped 0.4 percent to $1.0010
Traders said stop-loss selling weighed on the Australian dollar on Wednesday. It has taken a hit this week as investors fear that widespread floods in the country's northeast will hit production of coal, the nation's biggest export.
A year-end rally in thin trade had driven the Aussie to a 28-year high around $1.0257 last Friday. (Additional reporting by Masayuki Kitano in Singapore, Editing by Catherine Evans)