UPDATE 2-China ready to buy 4-5 bln euros of Portugal debt-paper

* Newspaper says China to buy Portugal debt in Q1 2011

* China central bank declines to comment

* Beijing under domestic pressure to invest more carefully

* Euro rises to day’s high vs dollar on report

(adds Portugal redemptions, bond spread)

LISBON, Dec 22 (BestGrowthStock) – China is ready to buy 4-5 billion
euros ($5.3-$6.6 billion) of Portuguese sovereign debt to help
the country ward off pressure in debt markets, the Jornal de
Negocios business daily reported on Wednesday.

The paper said, without citing any sources, that a deal
reached between the two governments will lead to China buying
Portuguese debt in auctions or in the secondary markets during
the first quarter of 2011.

China’s central bank declined to comment on the report,
while Portuguese government officials were not immediately
available for comment.

It is unclear whether China’s government would be prepared
to take on so much fresh exposure to Portugal in such a short
space of time, given that Beijing has faced domestic political
pressure to invest the country’s foreign reserves more

Chinese investment funds suffered some large, high-profile
losses during the global financial crisis.

The euro rose to the day’s high versus the dollar on
Wednesday on the back of the report, climbing around 30 pips to
a session high of $1.3168 according to Reuters data (EUR=: ).

However, “the report is unsourced so although it’s providing
a bit of support, clients certainly aren’t putting much weight
on it,” said one trader.

Portugal has moved into the eye of the storm in the euro
zone’s debt crisis, with borrowing costs spiking as investors
grew concerned it would be next in line to seek an international
bailout after Ireland and Greece.

Despite the report, the premium investors demand to hold
Portuguese 10-year bonds rather than safer German Bunds was
still seven basis points from Tuesday’s settlement levels to 378
bps. Last month the spread hit a euro lifetime record of more
than 481 bps but has narrowed thanks to bond buying by the
European Central Bank.

Portugal has completed its debt issuance programme for 2010,
and according to the IGCP debt agency, its next bond redemption
is due in April, when it has to repay 4.5 billion euros. In
total, Lisbon has to repay 9.5 billion euros in bonds next year.

The 2011 budget puts next year’s net financing needs at
10.75 billion euros. The IGCP has not yet announced the issuance
programme for next year.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Graphics: Euro zone debt struggle http://r.reuters.com/hyb65p More on euro zone debt [nLDE6T0MG]


Finance Minister Fernando Teixeira dos Santos met Chinese
Finance Minister Xie Xuren and the head of the People’s Bank of
China during a visit to the country last week.

Portuguese officials have said the government is trying to
diversify the debt investor base, with China as a priority.

On Tuesday Moody’s Investor Service warned it may downgrade
Portugal’s A1 rating by one or two notches after a review that
will take up to three months, citing high borrowing costs and
weak growth prospects. [ID:nLDE6BK0HV]

In October, during a visit to Greece, Chinese Premier Wen
Jiabao offered to buy Greek bonds when Athens resumed issuing.

A month later, President Hu Jintao visited Portugal and
offered “concrete measures” to help the weak economy but stopped
short of promising to buy Portuguese bonds. [ID:nLDE6A60A2]

Chinese Vice Premier Wang Qishan said on Tuesday that
Beijing supported efforts by the EU and the International
Monetary Fund to calm global markets in the wake of Europe’s
debt crisis and said China had taken “concrete actions” to help
some European countries.

Later in the day, the Chinese commerce minister put the onus
more firmly on EU policymakers to act.

“We want to see if the EU is able to control sovereign debt
risks and whether consensus can be translated into real action
to enable Europe to emerge from the financial crisis soon and in
a good shape,” Chen Deming said. [ID:nTOE6BK01Q]

Major euro zone economy France played down the concerns over
Portugal on Wednesday. The government has “no particular worry”
about Portugal, government spokesman and Budget Minister
Francois Baroin said, responding to reporters’ questions.
(Reporting by Shrikesh Laxmidas; editing by Mike Peacock/Ruth

UPDATE 2-China ready to buy 4-5 bln euros of Portugal debt-paper