* Euro eases from 4-1/2-month high vs dollar
* Investors await Portugal budget vote
* Sterling falls after UK growth forecast (Adds details, updates prices)
NEW YORK, March 23 (Reuters) - The euro fell on Wednesday on concerns a political crisis in debt-ridden Portugal could force the government to seek aid, though losses in the single currency should be limited amid expectations of rising euro zone interest rates.
The euro eased from the 4-1/2-month high against the dollar set on Tuesday after failing to break through options barriers in the $1.4250 area. Analysts said the euro could dip below $1.40 in the short term, before rising toward $1.4280, the November high.
Portugal's parliament was expected to reject austerity measures, setting the stage for the possible collapse of the minority Socialist government a day before a European summit. Portuguese bond yields rose as investors priced in increased risk of a debt restructuring.
Portugal's Prime Minister Jose Socrates will make a statement at 2000 GMT, TSF radio reported on Wednesday, citing a government source..
"There's currently a lot of concern on the Portuguese budget vote and the potential political implication for it," said Mary Nicola, currency strategist at BNP Paribas in New York.
"The fear is that if Portugal fails to agree on austerity measures, we can potentially see the country forced into the EFSF," she said, referring to the European Financial Stability Facility, a program set up to bail out failing peripheral economies.
The euro was last down 0.5 percent at $1.4122 after hitting a low for the session of $1.40998, according to trading platform EBS.
Adding to bearish sentiment was a document showing European leaders will decide on how to increase their bailout fund only in June, not this week.
In a sign the euro zone debt crisis was more on investors' minds, the yield on Irish government bonds also soared to euro-lifetime highs on uncertainty over whether a European summit later this week will agree on an improvement of the terms on bailout loans.
Sterling was last down 0.8 percent to $1.6244. It touched the day's low as Britain lowered its growth projections for the coming year and increased borrowing targets.
DOWNSIDE LIMITED
The prospect of higher interest rates, combined with a sense that European policymakers have the will to resolve the debt crisis, was expected to keep the euro supported around $1.40, analysts said.
"Economically, the euro zone is showing clear signs of recovery, politically the politicians are heading in the right direction and expectations of the ECB raising rates favors the euro over the U.S. dollar," said Thanos Papasavvas, head of currency management at Investec Asset Management, which manages over $10 billion in currency funds.
"We hold an overweight position in the euro and will be looking to buy on any dips if the euro corrects," he added.
The European Central Bank is widely expected to raise interest rates next month, which will further move yield differentials in favor of the euro.
By contrast, a plunge in U.S. new home sales last month reinforced the view the Federal Reserve will maintain its stimulative monetary policy for the foreseeable future.
"We continue to believe that this dip in housing will translate into a double dip on the overall U.S. economy, further rolling forward any stimulus-exit plans set by the Fed," said Douglas Borthwick, managing director at Far0s Trading LLC in Stamford, Connecticut.
"With a hawkish ECB, we expect the 2-year Swap differential between the U.S. and Europe will rise to 150 basis points over the next 3 months, and translate into the euro/dollar trading at 1.50 by that time," he added.
The dollar was down 0.2 percent against the yen at 80.82, with markets wary of intervention by authorities to curb yen strength. A fall below the 80 to 80.50 area could see officials return to the market to sell the Japanese currency.