* Moody's says may downgrade Portugal by one or two notches * Euro pares gains vs dollar, at all time low vs Swiss franc * Spanish bill auction passes smoothly but concerns remain (Adds quote, updates prices) By Neal Armstrong LONDON, Dec 21 (Reuters) - The euro pared gains against the dollar in thin trade on Tuesday after ratings firm Moody's put Portugal on review for a possible downgrade, reinforcing worries that the euro zone's debt crisis would persist well into 2011. The single currency also fell to a fresh lifetime low versus the Swiss franc as investor concerns over the euro zone periphery enhanced the safe haven status of the franc. Moody's said it may downgrade Portugal's A1 rating by one or two notches after a review, citing concerns about the country's weak growth prospects and high borrowing costs, in the latest ratings-related jolt to a euro zone member. "The Moody's announcement on Portugal has knocked some of today's optimism out of the euro but these credit announcements are not completely out of the blue any more so the negative reaction is always going to be a little bit more dampened than six months ago," said Jane Foley, senior currency analyst at Rabobank. "I don't think this announcement on its own will be capable of knocking euro/dollar out of its range," she said. Comments from a Chinese vice premier that China supports European Union efforts to calm global markets in the wake of Europe's debt crisis were enough to trigger a short-covering rally in holiday-thinned trade in Asia. "The comments show the euro failing is not acceptable for the Chinese," said Pierre Lequeux, head of currency management at Aviva Investors. "Supporting the euro is aimed at gaining more political leverage when negotiating with the United States," he added. But Beijing's challenge to the EU to deal swiftly with its debt problems also highlighted the extent of concern over the still expanding crisis. The euro fell around 45 pips on the announcement before steadying at $1.3150, still up around 0.2 percent on the day. It made a brief show above $1.3200 in the Asian session, extending its rebound from Monday's trough of $1.3094, its lowest since Dec. 2. In a positive sign, the currency has managed to crawl back above its 200-day moving average, now at $1.3102. Many market players think pressure will remain on the euro as a number of investors fret that the debt crisis that has already 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 on Tuesday, in its last funding exercise of the year, but euro zone debt worries are likely to persist into 2011. "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. EURO/SWISS RECORD LOW The euro slid to a record low against the Swiss franc of 1.2615 francs on trading platform EBS, its weakest since the euro's launch in 1999. "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. "At some point the SNB may have to resort to more decisive measures to counter any further decline in euro/Swiss. But we may have to see further deterioration in the Swiss fundamentals before this can happen." The dollar was flat at 83.65 yen with strong support seen around 82.80 yen, its low from last week. The Bank of Japan kept monetary policy steady on Tuesday as expected. The Aussie dollar rose 0.1 percent versus the U.S. dollar to $0.9950, showing little reaction as the Reserve Bank of Australia confirmed it was in no hurry to raise rates. (Additional reporting by Tamawa Desai, editing by Hugh Lawson)

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