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Most equity markets in the region posted slight gains following a rise on Wall Street as investors looked beyond the latest bout of nervousness over the euro zone debt crisis after Moody's slash in the ratings of Portugal sparked a selloff in peripheral bonds.

The sharp drop in the bonds of Portugal and Greece came just a week after investors had breathed a sigh of relief that Greece had passed tough austerity measures needed to win a near-term bailout, thereby avoiding a default.

The ECB is widely expected to lift rates for a second time this year to 1.5 percent but then also step back for a few months as it battles with the debt crisis and sticks to a hardline view of trying to avoid an outright default.

"The ECB is set to hike policy rates by 25 basis points today, but the recent deterioration in market sentiment should at least argue for more caution moving ahead," said market analysts at Credit Agricole CIB in a note to clients.

The MSCI index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was up 0.2 percent in early trade, pushing back near a one-month peak.

Bank shares helped lead gains in Hong Kong as investors judged that the People's Bank of China is getting closer to taking a break from its multiple increases in policy rates and bank reserve requirements as the economy shows signs of losing steam.

The Hang Seng index .HSI edged up 0.3 percent, recouping some of the losses from the previous day when a sale of Chinese bank shares by Singapore sovereign fund Temasek prompted a broad drop. China Construction Bank (0939.HK), one of the banks sold by Temasek on Wednesday, was up 0.3 percent.

But the Shanghai Composite .SSEC gave up early gains and fell 0.5 percent on a slide in energy stocks.

Japan's Nikkei average .N225 dipped 0.1 percent, slipping back after a push through chart resistance the previous day to a four-month high sparked buying by model funds.

The Australian dollar jumped after data showed a robust increase in June employment showed the economy was holding up well despite recent reports showing households becoming more cautious on spending.

The Aussie was up 0.4 percent against the dollar at $1.0736, while the euro was steady at $1.4320.

Gold prices were little changed at $1,528.20 an ounce, while U.S. crude oil was up 66 cents to $97.31 a barrel.

(Editing by Ramya Venugopal)

The bank, however, claimed a partial victory, citing District Judge Rya Zobel's decision to dismiss claims by borrowers who sought to participate in the two-year-old Home Affordable Modification Program, or HAMP.

Zobel nonetheless ruled that homeowners who contend they did not get modifications for which they qualified under HAMP, to avoid foreclosures, could pursue claims against Bank of America.

The complaint "meticulously" detailed each of these plaintiffs' compliance with loan modification conditions, but said the bank "willfully failed" to modify the loans, either in bad faith or for its own economic benefit, Zobel wrote. Such allegations are "sufficient" to let the lawsuit go forward, she added.

Zobel rejected claims by borrowers who claimed they were "intended beneficiaries" of HAMP but never entered the program, saying they had no contractual right to relief.

She also rejected a request to block Bank of America while the lawsuit is pending from foreclosing on 37 borrowers said to be in "imminent danger" of losing their homes.

In a statement, Bank of America spokeswoman Shirley Norton said the company is pleased that four of the eight counts in the complaint were dismissed.

The lawsuit combines 26 cases that had been brought in 19 states, and sought class-action status for various plaintiffs.

"The Court's conclusions will likely help hundreds of thousands of families to convert temporary mortgage modification plans into permanently lower monthly payments. Tens of thousands of foreclosures are likely to be prevented," said Gary Klein, a lawyer for the plaintiffs, adding that he expects the case to get class certification quickly.

Last week, Bank of America said it would take $20 billion of charges for various mortgage matters, including over its 2008 purchase of Countrywide Financial Corp.

Like several rivals, the Charlotte, North Carolina-based bank has also been in talks with state and federal regulators to resolve claims over alleged foreclosure abuses.

HAMP was created in 2009 as a centerpiece of efforts by the Obama administration to boost the nation's housing sector.

While it provides incentives to loan servicers to encourage modifications, HAMP has been widely derided as ineffective.

Through May, 731,451 borrowers had received permanent loan modifications, far below the original goal of 3 million to 4 million.

The Republican-controlled House of Representatives voted in March to wind down the program, though the Democrat-controlled Senate is not expected to follow.

Bank of America, JPMorgan Chase and Wells Fargo & Co are the largest servicers participating in HAMP.

The case is In re: Bank of America Home Affordable Modification Program (HAMP) Contract Litigation, U.S. District Court, District of Massachusetts, No. 10-md-02193.

(Reporting by Jonathan Stempel; editing by Carol Bishopric)

The San Francisco based-company said on Wednesday it now expects annual net revenue growth "in the high single-digit to low double-digits range" for the next fiscal year ending September 30, 2012.

Visa still expects annual net revenue growth of 11 percent to 15 percent for fiscal 2011.

The Federal Reserve finalized last week rules slashing the "swipe" fees merchants pay banks and networks such as Visa and MasterCard Inc (MA.N) every time a customer buys something with a debit card.

"The impact is manageable," Chief Executive Joseph Saunders told analysts during a conference call on Wednesday.

He added that the rules "affect, but far from eliminate," a portion of the U.S. debit revenues that make up about 20 percent of Visa's global net revenue.

Banks pay card networks such as Visa and MasterCard for processing debit transactions and investors had worried that a cut in the fees that banks earn from retailers would translate into a cut in the fees they were willing to pay the networks.

Visa said in a conference call with analysts on Wednesday that its new guidance "contemplates" some pricing concessions to banks, but executives would not be more specific.

Saunders said during the call he expects the 2012 fiscal year to "bear the weight" of the debit fee crackdown, and that revenue growth would "regain momentum" in fiscal 2013.

The company also expects lower profits next year. It sees earnings per share growth "in the middle to high teens" in fiscal 2012, compared with the "greater than 20 percent" earnings-per-share growth it expects for the current year.

Last week, the Fed softened its initial restrictions, which were required by the 2010 Dodd-Frank financial reform law. But the final rules are still expected to cost the banking industry some $9.4 billion out of an estimated $23 billion in annual debit card processing fee revenue, according to the website, CardHub.com.

The softened rule was a victory for banks such as Bank of America Corp (BAC.N) and JPMorgan Chase & Co (JPM.N), as well as for Visa and MasterCard. The industry lobbied fiercely to weaken or delay the strict cap initially proposed by the Fed in December.

Visa also said on Wednesday it completed a $1 billion share repurchase program it authorized in April. Its shares closed down slightly at $88.20 on Wednesday.

(Reporting by Maria Aspan; editing by Andre Grenon)

The 25-basis-point increase in lending and deposit rates underscores China's quiet confidence that the world's second-biggest economy is resilient enough to take tighter monetary policy in its stride, and is not threatened by a hard landing that some investors fear.

"China's inflation battle is almost at an end. Already, there are signs that price pressures are coming off. Today's rate hike may therefore have been the last in the cycle," said Frederic Neumann, an economist at HSBC in Hong Kong.

The latest move increases China's benchmark one-year lending rate to 6.56 percent, and lifts its benchmark one-year deposit rate to 3.5 percent, the central bank said.

The increases will take effect from Thursday, the central bank said in a short statement on its website.

But with growing evidence that China's vast manufacturing sector is easing on the back of tight policy at home and softening demand abroad, some economists think Beijing may be near the end of its nine-month-long policy tightening cycle.

With U.S. interest rates near zero, Beijing also worries it would attract more speculative funds into China if it raises rates too far. That would exacerbate the problem of excess liquidity and further fuel inflation.

China's inflation quickened to a 34-month high of 5.5 percent in May as elevated food prices and a red-hot property market kept price pressures alive.

Beijing is especially sensitive to rising prices as it worries that could stir social unrest and threaten its leadership.

Wang Jun, an economist at CCIEE, a government think tank, said Beijing may feel compelled to raise rates again if inflation proves more stubborn than expected.

"If inflation comes down, there will be no need to raise rates. But if prices rebound, there could be further rate rises," he said.

(Reporting by Aileen Wang, Kevin Yao and Koh Gui Qing; Editing by Don Durfee)

* Caution over the euro zone debt crisis resurfaced after Moody's became the first ratings agency to cut the credit rating for Portugal by four notches to non-investment grade, known as "junk," warning the country may need a second round of rescue funds before it can return to capital markets.

* The euro lost ground against the dollar and the Swiss franc on euro zone debt worries and peripheral euro zone banking stocks fell across the board.

* U.S. stocks ended mainly flat in thin trade on Tuesday, as investors paused after last week's rally.

* The ISM non-manufacturing index, due at 1400 GMT, is expected to show a slight dip to 54.0 in June from 54.6, according to a Reuters poll, the second-lowest reading since last August.

* Other data scheduled for release include the Challenger planned layoffs for June at 1130 GMT and weekly mortgage index numbers at 1100 GMT.

* In company news, Berkshire Hathaway Inc (BRKa.N) has joined the group bidding for Citigroup's (C.N) consumer lending unit OneMain, formerly known as CitiFinancial, the Wall Street Journal said, citing people familiar with the matter.

* U.S. pipeline safety regulators on Tuesday said Exxon Mobil (XOM.N) must make fixes to its ruptured Montana oil pipeline and submit a restart plan before oil can flow again.

* Global passenger airplane market over the next 20 years is seen at $4 trillion, Boeing Co (BA.N) said on Wednesday, adding it expects a market for 33,500 new planes and freighters by 2030.

* In Europe, the FTSEurofirst 300 index .FTEU3 of top shares was lower in early trade, ending a seven-day winning steak on concerns about the euro zone debt crisis and the possibility of contagion after Moody's cut Portugal's credit rating.

(Reporting by Harpreet Bhal, editing by Jane Merriman)

The cost of insuring all weaker euro zone countries' debt against default rose and Portuguese two-term bond yields spiked by a whole percentage point on Moody's decision, announced late on Tuesday, to cut Portugal by four notches.

The euro and European shares fell on the news, ending a seven-day stocks rally, and Portugal had to pay more to sell 3-month T-bills on Wednesday.

The thumbs-down, coming so soon after a new center-right Lisbon government announced austerity plans going beyond those demanded by international lenders, again called into question the EU strategy for dealing with the euro zone sovereign debt crisis.

Moody's said Portugal may need a second round of rescue funds before it can return to capital markets, just as European governments and banks are haggling over a second 120 billion euro bailout for Greece, which has a much higher debt ratio.

"The key worry of the market is that the events that we've been seeing with Greece are being repeated with Portugal," said WestLB rate strategist Michael Leister.

IRELAND TOO?

Ireland, the other euro zone country to have received a bailout, said on Tuesday it may have to make additional spending cuts next year to meet deficit reduction targets in its 85 billion euro bailout plan due to an economic slowdown.

A Reuters analysis last week found that Dublin may also need a second bailout because it is unlikely to grow fast enough to make the envisaged full return to market funding in 2013.

Moody's cited the European Union's management of the crisis, and specifically the attempt to make private creditors share the burden of all future rescues as one reason for its steep downgrade.

The demand that banks and insurers share the risk is driven by growing public hostility in north European creditor nations to any further bailouts for south European states seen as having lived beyond their means.

But Moody's said insisting on private sector involvement not only increased the economic risk facing current investors, but also "may discourage new private sector lending going forward and reduce the likelihood that Portugal will soon be able to regain market access on sustainable terms.

BANKERS FACE OBSTACLE COURSE

Representatives of Greece's major creditor banks were meeting in Paris under the aegis of the International Institute of Finance (IIF), a banking lobby, to discuss the terms of a proposed rollover of privately held Greek debt.

Banking sources said numerous issues involving credit ratings, interest rates, maturities and accounting consequences remained to be ironed out among multiple stakeholders and an agreement was only likely in September.

Credit ratings agencies have warned they would be likely to treat any "voluntary" rollover of Greek bonds as a distressed debt exchange and declare it, at least temporarily, to be a selective default.

European leaders' response has been to criticize the ratings agencies rather than reconsider their policy of seeking at all costs to avoid a debt restructuring.

German Chancellor Angela Merkel brushed aside on Tuesday a warning by the world's biggest ratings agency, Standard & Poor's, that it would view the current French plan for a partial rollover by banks of maturing Greek debt as a default.

"It is important that the troika (EU, IMF and European Central Bank) do not allow their ability to make judgments to be taken away," she said. "I trust above all the judgment of these three institutions."

Germany's deputy finance minister told Reuters it was "absolutely premature" to discuss a second rescue package for Portugal and Berlin was confident the country could implement its reforms and get back on track.

"There is a new government in place so I would really suggest giving the government the time to do what the new government has promised," Joerg Asmussen told Reuters Insider TV.

"We are confident they are willing and able to implement the first package and get back on track," he said.

New French Finance Minister Francois Baroin was just as dismissive of Moody's action on Portugal.

"A ratings agency's view is not going to solve the matter of tension on sovereign debt markets and the budgetary crisis," he said, adding he trusted Portugal's new government to meet its deficit reduction target by 2013.

SELF-FULFILLING?

EU officials complain that the ratings agencies' downgrades are a self-fulfilling prophecy, making it harder for countries under assistance programs to return to capital markets.

Underlying the debate is an increasingly prevalent view in financial markets -- disputed publicly by EU governments -- that Greece, and possibly also Portugal and Ireland, will have to restructure debt sooner or later and force significant losses on bondholders.

The more widespread that assumption becomes, the harder it will be to negotiate further official funding for Greece.

The International Monetary Fund board is expected to approve on Wednesday the release of a vitally needed fresh tranche of loans for Greece after euro zone finance ministers agreed on Saturday to pay their share.

But IMF sources say disquiet is growing among non-Europeans at the global lender over the risks of pouring more money into Europe's debt crisis with no resolution in sight.

"It goes to show that this whole crisis isn't over just yet. Even if they cough up some more money for Greece, and that looks like it's a done deal, it's not over," said Jay Bryson, global economist at Wells Fargo Securities.

"I would think it's bad news for Spain and Italy as well."

(additional reporting by Ana Nicolai da Costa, Naomi Tajitsu and Alex Chambers in London, Walter Brandimarte in New York, Eva Kuehnen, Annika Breidthardt and Gernot Heller in Berlin and Leigh Thomas in Paris; writing by Paul Taylor, editing by Janet McBride)