* Euro at 4-mth high above $1.40 on rate rise expectations
* Middle East buying helps euro erase earlier losses
* Moody's cuts Greece rating
* Dollar index hits 4-month low
(Rcasts, updates prices, adds comment, detail, changes dateline, previous LONDON)
NEW YORK, March 7 (Reuters) - The euro jumped to a four-month high against the dollar on Monday as expectations of a euro zone interest rate hike next month helped it vault back above $1.40, with a ratings downgrade of Greece having little lasting impact.
Traders said the shared currency was on course to test last November's highs in the $1.4080-1.4280 area, supported by steady buying from real money accounts and as interest rate differentials remained in focus despite rising oil prices and turmoil in Libya.
The euro
Gains accelerated on Monday as stop loss orders were triggered on the break of $1.4005 and $1.4025, though the rally stalled ahead of an options barrier at $1.4050. More option barriers are said to be placed at $1.41
"ECB President Trichet's comments exceeded the market's already hawkish expectations and have provided fuel for the latest leg up in euro/dollar," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange, Inc. in Washington. "Even Friday's downgrade of Spain's sovereign debt by Fitch's rating agency and an overnight downgrade of Greece by Moody's had little impact on the single currency's broad strength."
The common currency has been strong since European Central Bank President Jean-Claude Trichet surprised investors on Thursday by saying that interest rates may rise as early as next month.
Latest data showed speculators' long euro positions at their highest level since January 2008 [IMM/FX]. The data only shows positions taken to Tuesday, two days before before Trichet spoke on Thursday.
Large long positions were also recorded in the Canadian dollar and Australian dollar. While large one-sided positions can lead to volatility, analysts are not expecting price trends to change without unexpected event risk.
The euro's rise made the dollar index <.DXY> cede ground and fall to a four-month low of 76.124.
RATE DIFFERENTIALS
The euro did lose ground after Moody's slashed Greece's debt rating by three notches and kept it on review for a further possible downgrade, but the falls proved short-lived. [ID:nLDE7260D6].
"Greek debt is already considered as 'junk' and the euro remains driven by ECB policy expectations," said Chris Walker, currency strategist at UBS in London.
In an interview published on Monday, ECB Executive Board member Jose Manuel Gonzalez-Paramo said an April rate increase was possible as the central bank continues its mission to control inflation. [ID:nLDE72503L]
The ECB's stance contrasts sharply with that of the U.S. Federal Reserve, which is expected to keep monetary policy loose for some time, reflecting more concern about the outlook for growth than about inflationary pressures.
"Despite signs of a recovery in the U.S., the Fed will continue to fight growth risks while the ECB will fight inflation risks," BNP Paribas analysts wrote in a report. Expectations that the ECB also will be ahead of other major central banks like the Bank of Japan and the Swiss National Bank helped the common currency on the crosses.
The euro was down 0.1 percent against the yen at 115.03 on EBS
A trader for a major Japanese bank in Tokyo said Japanese exporters sold the euro on Friday as it rallied, and added they might still try to sell the euro above 115 yen. (Reporting by Nick Olivari, additional reporting by Jessica Mortimer in London, Editing by Chizu Nomiyama)