* Moody's may downgrade Portugal by one or two notches
* China supports Europe's efforts to tackle debt problems
* Euro rebounds vs dollar, but hits record low vs franc (Adds quote, updates prices)
By Wanfeng Zhou
NEW YORK, Dec 21 (Reuters) - The euro rose against the dollar on Tuesday after supportive comments from China spurred a bout of short-covering, but the gains were likely to be short-lived amid fears of more ratings downgrades of indebted euro zone economies.
Analysts still expect the euro to gradually slide toward $1.30 in the coming days. A significant decline below that level appeared unlikely, they added, as liquidity thins and traders close out positions ahead of year-end.
China's Vice Premier Wang Qishan said Beijing, which has invested an undisclosed portion of its $2.65 trillion reserves in the euro, had played its part to ease Europe's plight and held out hope that a turning point was near. The comments helped the euro push above $1.32 and regain its 200-day moving average. For details, see [ID:nTOE6BK01Q]
But the euro pared gains after Moody's warned it may downgrade debt-ridden Portugal's A1 rating by one or two notches after a review that will take up to three months, reinforcing worries the debt crisis would persist well into 2011. [ID:nLDE6BK0HV]
"Near term, the euro will remain under pressure. There is certainly good interest to want to sell euros on any rallies," said Dean Popplewell, chief strategist of FX brokerage OANDA in Toronto.
"In the bigger picture of things, there's no clarity from European policymakers with regards to the contagion fears in Europe and we can expect this to weigh on the euro for the remainder of the year," he added.
The euro rose 0.2 percent to $1.3140, rebounding from Monday's trough of $1.3094, its lowest since Dec. 2. It earlier hit as high as $1.3202 EUR=EBS on trading platform EBS.
The euro has managed to crawl back above its 200-day moving average, now at $1.3098 on EBS, after breaking below it on Monday. But analysts said sentiment remained bearish on fears the debt crisis that has engulfed Greece and Ireland could put Portugal and Spain under more pressure early next year.
Spain sold 3.88 billion euros in treasury bills relatively easily Tuesday in its last funding exercise of the year, but analysts said worries about the ability of indebted euro zone countries to service their debt will persist. [ID:nEAP000941]
"It seems clear that from January, the debt problems will still be very much there. These countries need to raise a lot of money early next year," said Beat Siegenthaler, currency analyst at UBS in Zurich.
The single currency fell to a fresh lifetime low of 1.2560 Swiss francs EURCHF=EBS on EBS as euro zone concerns enhanced the safe-haven status of the franc.
"Many investors are using euro/Swiss as a gauge for the concerns about the problems in the euro zone periphery. Sovereign risk is still weighing on the euro into year-end," said Valentin Marinov, currency strategist at CitiFX.
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