UPDATE 1-Portugal under the gun as borrowing costs rise

* Borrowing costs jump in Portugal T-bill auction

* Increases pressure on government for bailout

* Premier, treasury secretary, say no rescue needed

(Adds comments by Treasury Secretary)

By Sergio Goncalves

LISBON, Dec 1 (BestGrowthStock) – Debt-ridden Portugal suffered
another blow on Wednesday when its borrowing costs rose sharply
in a government Treasury bill auction, but officials insisted
the country could survive without an international bailout.

All the 500 million euros in 12-month T-bills on offer in
the auction were sold. But yields rose to a euro lifetime record
of 5.281 percent from 4.813 percent two weeks ago, demonstrating
sagging investor confidence in the Iberian nation which is now
in the frontline of the euro zone debt crisis.

“Should bond yields not ease soon, there is a significant
chance of Portugal being the next country having to seek an EU
bailout,” said Diego Iscaro, an economist at IHS-Global Insight
in London.

A defiant Prime Minister Jose Socrates denied on Tuesday
night that Portugal needed to seek a rescue. “We don’t need any
help. We will do all we can ourselves,” he told reporters.

Germany’s Economy Minister Rainer Bruederle offered him
support just before the bond auction, saying he did not believe
Portugal and Spain would need to tap euro zone rescue funds.

But the Standard & Poor’s rating agency said on Tuesday it
might cut Portugal’s credit rating.

The minority Socialist government is trying to demonstrate
that Portugal can avoid becoming the latest euro zone domino to
fall after Greece and Ireland, hoping that tax rises and cuts in
public spending planned for next year will do the trick.

Ireland agreed an 85 billion euro ($113 billion) bailout
from the European Union and the International Monetary Fund last
weekend — even though the Dublin government had said none was
needed until shortly before it asked for help.

Economists fear that unless Portugal takes the same
medicine, the contagion will spread to its neighbour Spain, a
considerably larger economy whose rescue could strain EU funds.

Spanish investors are heavily involved in Portugal,
especially banks. Ironically, Wednesday was a public holiday in
Portugal marking independence from Spain in 1640. Lisbon markets
were open but with reduced staff.

Portugal’s Treasury Secretary Carlos Pina attributed the
rise in yields to speculative pressures. Rumours that Portugal
was under pressure to request an aid package were harmful and
had to stop, he told Reuters on Wednesday.

“A bailout never normalises markets…Portugal does not need
a bailout,” Pina said. [ID:nSLA1NE6JM]

The demand at the T-bill auction showed Portugal maintains
the capacity to finance itself, Pina said. He also reiterated
the government’s commitment to meeting ambitious budget deficit
targets this year and next, of 7.3 percent of GDP and 4.6
percent of GDP respectively.


But Filipe Garcia, president of Informacao de Mercados
Financeiros consultants in Porto, said the debt auction was the
latest development pushing Portugal towards a bailout.

“What worries me most is that if the state only manages to
get financing at these rates, how much will companies that have
to turn to the international markets for financing have to pay?”
he said.

Socrates last week pushed through an austerity budget which
will raise taxes and cut public sector wages. So far this year
the government has been unable to cut spending as planned.

The government expects the economy to grow at least 1.3
percent this year, mainly thanks to rising exports, after last
year’s 2.6 percent contraction. Next year it predicts an
expansion of just 0.2 percent and many economists say the
economy will slide back into a recession.
(Additional reporting by Andrei Khalip, Writing by Angus
MacSwan, Editing by David Stamp)

UPDATE 1-Portugal under the gun as borrowing costs rise