* Euro off recent peaks before ECB rate decision
* Portugal's aid request unlikely to change ECB rate hike view
* Yen faces long-term slide but correction risks imminent
By Natsuko Waki
TOKYO, April 7 (Reuters) - The euro slipped from an 11-month high against the yen and 14-month peak versus the dollar as investors focused on how much room the European Central Bank has for raising interest rates beyond a widely expected tightening later in the day.
The yen held above a six-month trough against the dollar. The Bank of Japan met market expectations that it would keep monetary policy steady and signal its readiness to ease policy further, bucking a global trend of central banks withdrawing excess liquidity put in place during the financial crisis [ID:nL3E7F70JG].
The ECB is set to raise its benchmark rate by 25 basis points for the first time since July 2008. Portugal's request for a European bailout has not changed the view the ECB would follow up with more interest rate hikes, but many believe the euro has risen too fast too far and is overdue a correction.
Analysts also say ECB President Jean-Claude Trichet must sound hawkish enough to keep alive expectations for around 100 basis points in rate hikes by November and for the euro to achieve fresh gains.
"The euro has rallied considerably on the ECB rate hike view but it may be the case of buy the rumour sell on the fact," said Koji Fukaya, chief FX strategist at Credit Suisse.
"The euro zone debt crisis has not stopped the ECB from making hawkish comments. That means Portugal's story is not going to stop a rate hike. The market is pricing in 100 bps of rate hikes, but it may be difficult for us to really see that."
The euro was down a quarter point on the day at $1.4297 , having risen to $1.4350, its highest since late January 2010, on Wednesday.
Near-term support is seen in the $1.4285-1.4250 area. Failure to rise strongly above $1.4282 could open the way for a move back to around $1.4160.
The dollar had risen as high as 85.54 , almost 10 yen above its record low of 76.25 yen hit in March, days after northeast Japan's devastating earthquake. By mid-afternoon it had slipped to 85.17.
Resistance around the November high of 85.94 yen is hindering the dollar's advance. The area around 85.40 to 85.95 includes a 50 percent retracement of the decline from the May peak, as well as a downtrend line from the 2007 cycle high.
The euro was down two thirds of a percent at 121.77 yen after hitting an 11-month peak on Wednesday.
Despite Thursday's rise, the yen is expected to face long-term downward pressure from low interest rates and an expected decline in Japan's trade surplus as the country imports to rebuild the quake-hit region.
"Japan's trade surplus is expected to shrink, which could scale down fundamental upward pressure on the currency. But in the near term, a lot of moves have been driven by speculative flows and it may have moved too fast and now may be the time for the market to cool down," said Teppei Ino, an analyst at bank of Tokyo-Mitsubishi UFJ.
The yield spread between two-year euro zone and Japanese government bonds rose to 164.6 basis points, its highest since December 2008.
RHETORIC
The euro zone debt crisis has had little influence on the ECB's rhetoric. But higher euro zone interest rates would likely make it difficult for debt-laden peripheral countries to finance their deficits, by raising already high borrowing costs.
Portugal became the third euro zone member to seek a bailout from the European Union, with the size of the package expected to be up to 80 billion euro ($114 billion). [ID:nLDE7350HL]
Beyond the near-term, higher oil prices are expected to support the euro as resource-rich countries convert part of their dollar revenues into the single currency to diversify.
Brent crude oil prices stood near the previous day's 2-1/2
year high near $123 a barrel
In Asia, where central banks are stepping up intervention, euro demand from authorities which are also diversifying their reserves is likely to offer the single currency a solid floor.
The expectation for higher euro zone rates contrasted with uncertainty in the United States over when the Federal Reserve may begin to tighten policy. The U.S. economy remains too fragile for the Fed to begin raising rates, Atlanta Fed President Dennis Lockhart said on Wednesday [ID:nN06207079].
The dollar was up 0.1 percent at 75.613 against a basket of currencies.
The Australian dollar scaled a fresh 29-year peak against the greenback of $1.0481 and rose to 89.45 yen , its highest since September 2008, after data showed the economy added a higher-than-expected 37,800 jobs in March. [ID:nSYU010876] ($1 = 0.703 Euros) (Additional reporting by Masayuki Kitano and Reuters FX analyst Krishna Kumar; Editing by Joseph Radford)