* Euro pulls back further from 5-month high vs dlr
* Portugal downgrade sparks threats to stop buying debt
* China hikes rates by 25 basis points; the aussie dented
* Sterling rallies as data adds to rate hike chances (Recasts, adds quote, updates prices, adds details)
NEW YORK, April 5 (Reuters) - The euro fell against the dollar for a second straight day on Tuesday, extending declines from a five-month high, knocked by a ratings downgrade of Portugal and a rise in Chinese interest rates.
The decision by China to hike interest rates by 25 basis points, the fourth rate increase since October, also dented higher-yielding currencies like the Australian dollar..
Sterling gained after strong data boosted the chances of a UK rate hike.
Moody's cut Portugal's sovereign debt rating by one notch, saying debt problems on the euro zone periphery may prevent the European Central Bank from raising rates an anticipated three times this year. Reports that Portugal's biggest banks threatened to stop buying government's debt, instead urging the caretaker administration to seek a short-term loan, also put pressure on the single currency.
The euro is expected to stay stuck in its recent range ahead of the ECB's policy meeting on Thursday, after Monday's rally to a five-month high stalled ahead of resistance around $1.4280. That coincides with November's high of $1.4283 and a trendline drawn from the July 2008 record high.
"With the looming ECB decision and press conference the euro has been well supported, but is likely now entering a range that will hold until Thursday," said Camilla Sutton, senior currency strategist at Scotia Capital in Toronto. "For new highs to be reached from here, we will need to hear a fairly hawkish ECB President Trichet."
Widespread expectations for a 25 basis point rate hike by the ECB on Thursday continued to support the euro, with reported bids from $1.4140 seen limiting losses.
Adrian Schmidt, currency strategist at Lloyds, said the euro "is still in an uptrend, though people are wary of taking the euro higher ahead of the ECB meeting.
"I think it will break $1.4280 but we may need to see a narrowing in peripheral yield spreads (over German Bunds) before it makes much progress above there," he said.
Traders said a break to the topside would expose large option barriers at $1.4350 and $1.4400, expiring around the middle of April. They also highlighted a large option at $1.4100, expiring on Friday, which could influence price action.
The euro was down 0.3 percent at $1.4183, pulling back from a five-month high hit on Monday.
Further resistance was at $1.4374, the 76.4 percent retracement of the euro's slide from November 2009 to June 2010.
"There is a lot of good news priced into the euro already," said Niels Christensen, currency strategist at Nordea in Copenhagen, and ECB President Jean-Claude Trichet "will have to support the rate view to keep the positive momentum."
The Australian dollar traded down as low as $1.0288, taking it further from its post float high touched on Monday. The Australian dollar was floated in December 1983.
Given trade links, the Aussie can be the most sensitive to moves by China to tighten monetary policy because Australian exports could fall. The aussie last traded down 0.4 percent at $1.0320.
STERLING SHINES; FED MINS AHEAD
An unexpected leap in UK services sector activity to a 13-month high buoyed the pound, which rose as much as 1 percent versus the euro as the market moved closer toward pricing in a UK rate hike in June.
"Sterling is the main mover after the PMI data was vastly higher than expected, and there may be a little more potential for UK rate expectations to be pulled up further," Lloyds' Schmidt said.
Sterling was last up 0.8 percent against the dollar at $1.6261.
Later on Tuesday, minutes of the Federal Reserve March 15 meeting will be scrutinized for hints on whether U.S. policymakers may be edging toward a tighter monetary stance. Some Fed officials have struck a hawkish tone recently, while others have remained dovish.
Against the yen, the dollar rose 0.3 percent to 84.29 yen, edging closer to a six-month peak set on Friday. A 200-day moving average at around 83.55 is now seen acting as support. (Reporting by Nick Olivari; Editing by Leslie Adler)