Portugal pays more to raise fresh cash

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Even as Lisbon got the short-term funds, sceptical investors were adding to the pressure on the government by pushing 10-year bond yields to record highs on doubts that Portugal's public finances can be stabilised.

In late trade, the yield -- the rate of return for the buyer or holder of existing debt -- on the benchmark 10-year government bond was 9.129 per cent, the first time it has topped 9.0 per cent since the eurozone was established.

The yield on the 10-year bond was 8.950 per cent on Tuesday, already way over the just sustainable limit of around 6.0 per cent.

By comparison, rates on German 10-year bonds were about 3.30 per cent, reflecting investor confidence in the eurozone's strongest economy.

Earlier Wednesday, the government sold 320 million euros in 6-month bills at a yield of 5.529 per cent, up sharply from the 5.117 per cent paid at a similar sale on April 6.

It also sold 680 million euros in 3-month bills at 4.046 per cent, up from the 3.403 per cent paid on December 15, the public debt office said.

Although the government managed to raise the funds it wanted on Wednesday, the rates it had to pay were very high for such short-term debt, reflecting continued concerns over the state of Portugal's strained public finances.

Laurent Geronimi at Swiss Life Gestion Privee said the rates paid were up sharply compared with previous sales, with markets wary over the outcome of the EU-IMF debt rescue talks.

Geronimi noted that Portuguese 2-year bonds were yielding nearly 22 per cent, when they should normally be below the 10-year level, a "sure sign that the market is expecting a default."

Neighbouring Spain also had to pay higher yields when it raised 3.37 billion euros on Wednesday but while the government is struggling to balance the public books, many believe Madrid may have adopted just enough austerity measures to see it through without needing outside help.

After Greece and Ireland last year, Portugal had to call in the EU and International Monetary Fund at the beginning of the month to negotiate a debt rescue when faced with paying exorbitant rates on longer-term funds.

The talks with the EU and IMF, who have said they will demand tough conditions for any funding, are supposed to close by mid-May, ahead of Portugal's general election on June 5.

Lisbon must have the package in place by June 15 when it has to repay nearly 5.0 billion euros in maturing debt.

Portuguese business leaders meanwhile called on the EU and IMF officials in Lisbon to ensure continued access to credit for companies so as to sustain the struggling economy.

"We are going to voice our concerns that bank terms for company financing will be guaranteed," said Joao Vieira Lopes, president of the employers' confederation of trade and services companies.