* Political tension in Portugal weighs on euro, lifts yen
* Euro hits 5-week low versus dollar, falls 1.4 pct vs yen
* Expectations Fed will reduce stimulus support dollar
* U.S. private payrolls data at 1215 GMT in focus
By Jessica Mortimer
LONDON, July 3 The euro hit a five-week low
against the dollar and fell sharply against the safe-haven yen
on Wednesday after political tension in Portugal pushed up the
borrowing costs of lower-rated euro zone countries.
The euro fell to $1.2923, its lowest since late May.
It was last down 0.15 percent at $1.2958.
"Portugal is by far the biggest focus," said Derek Halpenny,
European Head of Global Currency Research at BTMU.
"For the euro this is a slow grind lower ... The euro has
been fairly resilient against the dollar and the market will
initially treat this with caution but it is clearly a euro
More euro losses would take it towards the mid-May low just
below $1.28, although analysts said traders may be cautious
about selling the currency aggressively before a European
Central Bank policy decision on Thursday.
"I don't think the euro will suffer too much heading into
the ECB ... Euro/dollar is in a range around $1.29 to $1.31 and
it will keep that before the ECB," said Geoffrey Yu, currency
strategist at UBS.
Portuguese 10-year bond yields topped 8
percent and equities slid as media reports said two
more government ministers were ready to resign after the finance
and foreign ministers quit earlier this week.
Spanish and Italian yields
also rose on worries the euro zone was set for a new flare-up.
The euro fell 1.4 percent against the safe-haven yen
to 128.78 yen on the EBS trading platform.
DOLLAR AWAITS DATA
Euro weakness against the yen helped push the dollar down
1.2 percent to 99.45 yen. But analysts said a solid
non-farm payrolls report on Friday would push the U.S. currency
back up. U.S. private payrolls figures due at 1215 GMT could
also give the dollar a lift.
"We would still buy dollar/yen on dips," said UBS's Yu.
The dollar index, which measures the currency's value
against a basket of currencies, was last down 0.15 percent at
83.40, off an earlier five-week peak of 83.717.
Traders were cautious before a U.S. market holiday on
Thursday that could spark volatile movements due to low volumes.
However, expectations the Federal Reserve will scale back
stimulus while other central banks are more likely to ease
policy were expected to support the dollar.
The higher-yielding Australian dollar slid to a
near three-year low of $0.9052 after Reserve Bank of Australia
Governor Glenn Stevens said he was surprised by the resilience
of the currency.