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Portugal denies it will need EU-led bail-out Portugal bond auction successful but yield rises
(40 minutes later)
Portugal's government has reiterated that it will not need financial support from the European Union. The Portuguese government's latest bond auction has been successful, but the yield it has had to offer investors has risen sharply.
The Portuguese Prime Minister, Jose Socrates, said that what the country needed instead was more confidence in its economy. The sale of 500m euros ($651m; £418m) worth of one-year bonds was two and a half times oversubscribed.
His comments come before a new bond auction by the government, with analysts waiting to see the extent of market interest. The yield rose to 5.3%, which BBC business editor Robert Peston said was "hugely expensive" for one-year bonds.
Despite concern at Portugal's debts, the euro rose in early trading. The Portuguese government is struggling with large debt levels, but denies it will need a European Union bail-out.
Against the dollar, the euro was up slightly to $1.3020 from its Tuesday low of $1.2969 - its lowest level since 15 September. Bonds are effectively loans, in this case made by investors to governments.
Against the pound, the euro was at 0.8377 pence, compared with Tuesday's close of 0.8366. The higher the yield of a bond's auction price, the riskier investors think that loan is, so the government has to offer them a higher rate of return to ensure it attracts enough buyers.
Bank concern The previous release of one-year Portuguese bonds had a lower yield of 4.8%.
In a Portuguese radio interview, Mr Socrates said: "I do not see any reason to change the position of the Portuguese government which is very clear: we do not need any help, what we need is confidence in the Portuguese economy. While the latest auction was oversubscribed, our business editor questioned how many of the government bonds were bought by Portuguese banks funded by the European Central Bank.
'Confidence issue'
Speculation that Portugal would need financial assistance has intensified since the bail-out was agreed for the Irish Republic, which is also struggling with a large deficit and bad debts at its banks.
Robert Peston said Portuguese officials had told him it was now "not a question of if there will be a bail-out, but when".
Portugal's latest denial that it will need financial support from the European Union came from its Prime Minister Jose Socrates.
In a Portuguese radio interview, he said: "I do not see any reason to change the position of the Portuguese government which is very clear: we do not need any help, what we need is confidence in the Portuguese economy.
"And we need to do what we can do and should do.""And we need to do what we can do and should do."
Lisbon's 500m euros ($651m; £418m) bond auction comes a day after ratings agency Standard & Poor's placed Portugal on credit watch because of the country's huge debts. Despite the continuing comments of the Portuguese government, ratings agency Standard & Poor's on Tuesday placed Portugal on credit watch because of the country's huge debts.
Portugal's central bank has also warned of the risks facing its banks.Portugal's central bank has also warned of the risks facing its banks.
On Tuesday, the central bank said they faced an "intolerable risk" if the government in Lisbon failed to consolidate public finances.
Standard & Poor's said Lisbon may not be doing enough to enact "growth-enhancing reforms", adding that it had done "little to boost labour flexibility and productivity".Standard & Poor's said Lisbon may not be doing enough to enact "growth-enhancing reforms", adding that it had done "little to boost labour flexibility and productivity".
The central bank also warned the Portuguese government that the country faced an "intolerable risk" if it failed to consolidate public finances.
Portugal, which approved an austerity budget for 2011 last week, is struggling to meet its targets for deficit reduction.Portugal, which approved an austerity budget for 2011 last week, is struggling to meet its targets for deficit reduction.
With the Irish Republic getting a European Union-led bail-out last week, the concern in some quarters is that Portugal may be the next country that needs assistance.
"The general feeling is that this is a mess that is not going to be easily escaped," said analyst Robert Ryan of BNP Paribas in Singapore."The general feeling is that this is a mess that is not going to be easily escaped," said analyst Robert Ryan of BNP Paribas in Singapore.
'Determination''Determination'
On the bond markets, the yield on Portuguese bonds was stable at 6.97%. On the bond markets, the intra-day yield on 10-year Portuguese bonds fell slightly, but remained at the historically high level of 6.85%.
The higher the yield, the less confidence investors have in the bond. The yield on German bonds - which are considered the safest in the eurozone - remained about 2.67%.
The yield on German bonds - which are considered the safest - remained about 2.67%.
On Tuesday, the president of the European Central Bank (ECB), Jean-Claude Trichet, tried to calm nerves over high eurozone debt levels.On Tuesday, the president of the European Central Bank (ECB), Jean-Claude Trichet, tried to calm nerves over high eurozone debt levels.
He said that both Greece and the Irish Republic were solvent, insisting that the eurozone economy was "functioning" and had grown by more than expected this year.He said that both Greece and the Irish Republic were solvent, insisting that the eurozone economy was "functioning" and had grown by more than expected this year.
Mr Trichet said that "observers are tending to underestimate the determination of the (eurozone) governments and the EU as a whole".Mr Trichet said that "observers are tending to underestimate the determination of the (eurozone) governments and the EU as a whole".
His comments have raised speculation that the ECB will expand its government bond purchase scheme.His comments have raised speculation that the ECB will expand its government bond purchase scheme.
The ECB has spent 67bn euros on purchases so far, and markets are now waiting to see if the governing council announces that it is expanding the programme following its rate-setting meeting on Thursday.The ECB has spent 67bn euros on purchases so far, and markets are now waiting to see if the governing council announces that it is expanding the programme following its rate-setting meeting on Thursday.