* Euro skids as downgrade highlights eurozone debt crisis
* World and European stocks end down
* Wall Street steadies from early drop; S&P a tad negative
* Oil slips after China's third rate hike of 2011
* Some risk aversion seen ahead of ECB, U.S. payrolls (Updates prices, market activity)
By Barani Krishnan
NEW YORK, July 6 (Reuters) - Portugal's credit downgrade pressured the euro and global stocks on Wednesday and China's rate hike weighed on commodities, but shares on Wall Street steadied after a brief early drop.
Moody's downgrade of Portugal cast new doubt on European efforts to rescue distressed euro zone states without debt restructuring. For more, see: [ID:nL6E7I60XH] Portugal's government bond yields hit lifetime highs, hammering the euro.
China's central bank raised interest rates for the third time this year [ID:nB9E7EM01R], making clear that taming inflation is a top priority as its economy slows.
The 19-commodity Reuters-Jefferies CRB index .CRB fell 0.4 percent [O/R]. U.S. crude oil CLc1, the CRB's main component, was down 0.2 percent. But gold, a safe haven, rose more than 1 percent GCQ1.
U.S. stocks edged higher after a weak open, although the S&P 500 index was a tad negative in late afternoon trade. Volume was light, with banking stocks particularly under pressure. [.N]
"Any time you are dealing with banking issues, there seems to be a domino effect," said Steve Goldman, market strategist at Weeden & Co.
At 3:00 p.m. EDT (1800 GMT), the Dow Jones industrial average .DJI was up 41.58 points, or 0.33 percent, at 12,611.45. The Standard & Poor's 500 Index .SPX was down 0.69 points, or 0.05 percent, at 1,337.19. The Nasdaq Composite Index .IXIC was up 2.50 points, or 0.09 percent.
"There's new momentum in the market following last week's surge, and generally speaking, the markets have an upward bias," said Michael McGervey, president of McGervey Wealth Management in North Canton, Ohio.
"But until we break through 1,345 (on the S&P 500), we'll be trading sideways," he said, adding that there was further upside potential if the level was breached.
The euro EUR=EBS fell 0.8 percent on the day after touching a one-week low below $1.43 and extending losses from the previous day. Its losses versus the dollar boosted the greenback 0.6 percent against a currency basket. [USD/]
The euro's fall came as fears over Greece and Portugal prompt investors to hunt for safer havens such as the Swiss franc EURCHF=R and yen EURJPY=R.
"Maybe we want a quick fix, maybe we are looking for one, but there is no quick fix and if there is, I haven't heard it yet," said Frank Lesh, a futures analyst and broker at FuturePath Trading LLC in Chicago.
Some investors were also shedding risky assets ahead of the European Central Bank's monetary policy announcement on Thursday.
The ECB is all but guaranteed to raise interest rates by 25 basis points to 1.5 percent -- an encouraging development for the euro -- although markets remain uncertain on the timing of further rate moves by the central bank.
The two-year yield on Portuguese government debt PT2Y=TWEB surged more than 2 percentage points to a lifetime high of 15.77 percent, while the 10-year yield PT10YT=TWEB climbed more than 1 percentage point to 13.45 percent, also its highest ever.
The MSCI world equity index .MIWD00000PUS, which tracks global equities, fell 0.4 percent. The FTSEurofirst 300 index .FTEU3 for European shares closed down 0.3 percent.
Markets showed little reaction to U.S. data on the service sector reflecting a slight slowdown in growth in June, according to the Institute for Supply Management.
The benchmark 10-year U.S. Treasury note US10YT=RR was up 8/32, its yield at 3.0895 percent. (Additional reporting by Naomi Tajitsu, Atul Prakash and Anirban Nag in London and Chuck Mikolajczak in New York; Editing by Dan Grebler)