Akhir 02, 1432 H/March 7, 2011, SPA -- The euro set a fresh four-month high Monday on hopes that the European Central Bank will lift interest rates, but debt concerns drove the European currency lower in later trading, according to AP. Central banks raise interest rates to fight inflation, and higher rates often cause a currency's value to rise. But they can slow economic growth. The euro peaked at $1.4036 early on Monday before drifting back to $1.3959 in afternoon trading, down from $1.3987 late Friday. Investors weighed their expectations for higher rates, which have driven the euro higher this year, against the debt woes in the region. Portugal's borrowing costs hit a euro-era high and a major credit ratings agency cut Greece's debt rating, warning of possible defaults down the road. «The euro is likely to grind higher,» said Win Thin, a currency analyst for Brown Brothers Harriman in New York. But «there's enough risks and problems out there for the eurozone that it's not going to be a straight line up.» The euro has risen about 4.5 percent this year, despite elevated borrowing costs for the region's most indebted countries. ECB President Jean-Claude Trichet said last week the central bank could lift rates as early as April because of the inflation risk from rising food and energy prices, creating more demand for the euro. The prospect of a bigger return on euro investments makes the dollar relatively unappealing for currency traders. Investors expect the Federal Reserve to keep interest rates at their current low near zero for far longer _ some analysts predict until the end of next year _ as climbing oil prices threaten to slow the economic recovery. But on Monday came a fresh reminder of how some European countries are struggling. Credit ratings agency Moody's cut Greece's debt rating further into junk status and warned that the country might default on its debt despite a ¤110 billion ($154 billion) bailout from the European Union and the International Monetary Fund last year. The ECB also halted an emergency bond-buying program last week that is meant to slow the jump in borrowing costs for the region's most indebted countries, even as Portugal's borrowing costs traded at euro-era highs. Investors fear that Portugal could be the third euro country to need emergency aid, following Greece and Ireland. In other afternoon trading Monday, the dollar fell to 82.24 Japanese yen from 82.32 yen, while the British pound dropped to $1.6187 from $1.6262. The dollar also hovered near record lows against the Swiss franc, and three-year lows versus the Canadian dollar. It traded at 0.9265 Swiss franc from 0.9264 and edged up to 97.36 Canadian cents from 97.24 Canadian cents as oil prices pulled off 2 1/2 year lows. Benchmark West Texas Intermediate crude for April delivery traded at around $105 a barrel the New York Mercantile Exchange. The price came close to $107 per barrel earlier in electronic trading, the highest since Sept. 26, 2008. The big run-up in oil prices because of upheaval in the Middle East and North Africa has helped Canada's currency. Canada is a major exporter of crude and other commodities, so it benefits when prices rise. The Swiss franc is a traditional safe-haven currency, and has also gained because of the geopolitical turmoil.