* Euro slips, may retreat more from 4-½ mth peak
* Portugal politics weigh on euro,
* EU set to delay decision on euro zone bailout fund
* Yen trapped by wariness over intervention
By Masayuki Kitano and Naomi Tajitsu
SINGAPORE/HONG KONG, March 24 (Reuters) - The euro fell on Thursday, pulling further away from a 4-½ month high versus the dollar on heightened worries that heavily indebted Portugal will require a bailout from the European Union.
The single currency slipped to the day's low as concerns about weakness in debt-addled euro zone countries were highlighted by a media report that ratings agency Moody's would downgrade the credit ratings of Spanish banks on Thursday.
Keeping the euro under selling pressure was the resignation of Portuguese Prime Minister Jose Socrates on Wednesday after Portugal's parliament rejected his government's latest austerity measures aimed at avoiding a bailout. [ID:nLDE72M00L]
News that European leaders are unlikely to take a decision on how to strengthen the euro zone's bailout fund until June also weighed on the single currency. [ID:nLDE72M1E6]
Players said the single currency could see a further correction in the near-term and possibly test levels around $1.40. Traders said light stop-loss orders were creeping below that level.
"Over the past week or so, the euro had been bought persistently, rising from around $1.38 to above $1.42 with quite a bit of momentum," said Tsutomu Soma, senior manager for Okasan Securities' foreign securities department in Tokyo.
"I wouldn't be surprised if there was a bit more of a pullback," Soma said, adding that the euro could drop to about $1.40 in the near-term.
The euro hovered around a session low of $1.4075, trading flat on the day. Traders said a further slide had been stemmed by bank bids around the $1.4070 area.
The euro has retreated after its rise earlier this week stalled at $1.4249, its highest level since early November.
"We have seen the top in EUR/USD for now," said a trader at a European bank in Singapore, adding he would sell into any rally towards $1.4140 and add to short positions around $1.40.
"I think we will see it back to $1.3850 pretty soon on the back of too much optimistic sentiment priced into the euro."
The mid-$1.3850 region is considered key support, given that the single currency rose to $1.3862 in early February during a sharp rally at the start of the year. It later pulled back before embarking on its latest climb.
Above that, the euro could be cushioned in the $1.4015-55 area, which contains a series of intraday highs hit earlier this month.
Some analysts say the euro is unlikely to enter a protracted downtrend at this point, given expectations the European Central Bank will raise interest rates as early as April.
This would support the single currency as it would boost its rate differential against the dollar and other lower-yielding currencies.
But others in the market question the ECB's intent to tighten monetary policy at a time when some euro zone countries are suffering from fiscal issues, an issue which may haunt the euro in the future.
DOLLAR SUPPORTED
The euro's latest drop gave some reprieve to the dollar.
The dollar index, which measures the dollar's value against a basket of currencies, edged up 0.2 percent to 75.958 <.DXY>, clinging to the gains it made on Wednesday.
Against the yen, the dollar held steady from late U.S. trade
at 81.00 yen
Market players are wary that Japan may intervene further to sell the yen if the dollar drops below 80 yen, and especially if such a move occurs in volatile trade as was the case last week, when the yen hit a post-World War Two record high of 76.25 to the dollar.
At the same time, traders say Japanese exporters are likely to sell the dollar on rallies, helping keep the yen stuck in range-trading against the dollar. Some cited demand from exporters around the 81.00 level on Thursday.
Sterling was flat at $1.6240
The pound had also struggled after minutes from the latest Bank of England policy meeting showed policymakers were less hawkish than some market watchers had expected. Investors are pricing in a UK interest rate rise in July. [ID:nLDE72M0W6] (Editing by Richard Borsuk)