* Euro little changed, Asian buying lifts it from low
* Euro-zone debt worries cap euro gains, worry investors
* Dollar back below 81.00 yen
* Risk trade may face reversal as year winds down (Recasts, updates prices, adds comment, changes byline)
By Steven C. Johnson
NEW YORK, Nov 9 (Reuters) - The euro erased losses against the dollar on Tuesday but stalled below $1.40, weighed down by worries about Irish and Portuguese government debt.
Heavy Asian and Middle Eastern buying helped lift the euro off a $1.3823 session low, trader said, but euro long positions established in recent months will cap gains in the short run, particularly with markets worried about euro-zone debt levels.
The euro was last at $1.3921, little changed from late Monday in New York, but traders said a retreat to $1.3697 was possible after the euro's overnight slide pushed it beyond the 76.4 percent retracement of a recent rally that culminated last week just shy of $1.43, a 9-1/2-month high.
"The rebound into the $1.40s was probably a bit too rich for the euro. I don't see much point holding it above there," said Andrew Wilkinson, analyst at Interactive Brokers Group.
The euro hit its recent high after the U.S. Federal Reserve said it would buy $600 billion of Treasuries by mid-2011 to lower interest rates and reinvigorate a sluggish economy.
While that has pushed U.S. bond yields lower and dulled the appeal of dollar investments, Wilkinson said it may boost U.S. growth in 2011, leaving markets to focus on the budget problems in euro zone countries such as Ireland and Portugal.
"I don't think those fears are overblown," he said.
The cost of protecting government debt against default in Ireland, Portugal and Spain has risen substantially in the past week, although it eased a bit on Tuesday ahead of a Portuguese bond auction the following day.
Irish debt came under pressure this week on fear the government won't be able to cut spending as much as planned next year, which could complicate efforts to sell fresh debt.
The European Central Bank responded last week by intervening in bond markets after a three-week layoff.
RISK TRADE GETTING LONG IN THE TOOTH
The euro fell 0.5 percent to 112.26 yen while the dollar lost 0.7 percent to 80.60 yen, not far from a 1995 record low of 79.75 yen. Stops were seen in around 80.60, with buying interest clustered in the 80.20-30 area, traders said.
A pullback in risk-taking sentiment after China said it would strictly manage company short-term foreign debt quotas contributed to yen gains, traders said.
Omer Esiner, chief market analyst at Commonwealth Foreign Exchange, said the bias was still for a weaker dollar but said the threat of Japan repeating its September intervention to weaken the yen was limiting the dollar's downside.
Some traders said intervention was unlikely ahead of a Group of 20 nations meeting later this week, at which leaders were expected to discuss ways of reducing global economic imbalances.
Emerging market governments have also complained that loose monetary policy in developed countries, chiefly the United States, is stoking inflation in their countries.
Analysts said that means investors should be wary of a sudden pullback in high-yielding emerging market assets and commodity-linked currencies such as the Australian dollar.
Traders said some macro accounts and commodity trading advisers, who are short-term players, were closing their long euro and short dollar forward and futures positions ahead of their book closing at the end of this month or next.
"The 'risk-on' trade has come so far since the end of August. It could have more to go, but I'm skeptical when you've got the Australian and Canadian dollars at par with the U.S. dollar and Asian leaders saying they won't stand for continued inflows of hot money," he said. "At some point, something will crack."