* ECB bites bullet, raises interest rates by 0.25 pct
* Euro off 14-mth high vs dlr, 11-mth peak vs yen
* Euro vulnerable to paring back of future rate rise chances
(Adds reaction to ECB decision, quote)
By Neal Armstrong
LONDON, April 7 (Reuters) - The euro was steady on Thursday after the European Central Bank raised rates for the first time since July 2008, but was off its multi-month peaks with investors edgy that expectations for more tightening this year could be dampened.
The ECB raised its benchmark rate by 25 basis points to 1.25 percent, as expected, with some having the view the euro may weaken if President Jean-Claude Trichet, at a news conference at 1230 GMT, does not sound hawkish enough to keep alive expectations for another two rate hikes by year-end.
Some say the euro could fall to as low as $1.4200 with all eyes on the tone of Trichet's introductory statement at the news conference. That assumes significance after last month's reference to "strong vigilance" regarding price pressures was widely interpreted as signalling a rate hike was imminent.
The single currency has risen more than 3 percent since Trichet's comments on March 3. He will need to make reference to "close monitoring" of price pressures in his remarks on Thursday to signal further rate rises are likely later in the year.
"The key will be Trichet's tone in the subsequent conference and any extension of his hawkish rhetoric from the March meeting should keep the euro supported," said Chris Walker, strategist at UBS.
The euro was down 0.3 percent on the day at $1.4280
Against the yen, the euro fell one percent on the day
"The market is fully expecting Trichet to remain (hawkish) so one would surmise the risk is for a correction lower in the euro," said one trader, who reported strong interest to sell the euro against the dollar at $1.4350 and versus the yen in the 122.50 area.
Lutz Karpowitz, currency analyst at Commerzbank said there was a risk euro bulls could be disappointed by any neutral comments from Trichet. "I would rather bet on the downside, $1.4200 can easily be reached," he said.
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Click [ID:nLDE7351YJ] to see fx trade ideas for ECB decision
ECB in graphics: http://r.reuters.com/kah88r
The euro zone's debt struggle: http://r.reuters.com/hyb65p
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SPANISH AUCTION
The currency market showed little reaction to Portugal's move 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]
Fears Spain may be the next on the market's radar for its debt problems eased somewhat after Madrid comfortably sold 4.1 billion euros of a new three-year bond.
Expectations 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 Bank of England kept rates unchanged, as expected.
Sterling
The dollar was up 0.2 percent at 75.649 <.DXY> against a basket of currencies.
The Bank of Japan kept monetary policy steady as expected and signalled 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 dollar rose to a six-month high of 85.54 yen in Asia, almost 10 yen above its record low of 76.25 yen hit in March, days after Japan's devastating earthquake. It fell back to trade around 85.15 yen in European trade.
The Australian dollar scaled a fresh 29-year peak against
the greenback of $1.0489