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Portugal borrowing costs rise amid looming crisis Portugal borrowing costs rise amid looming crisis
(about 1 hour later)
Portugal's borrowing costs have risen sharply amid fears of a growing political crisis in the country.Portugal's borrowing costs have risen sharply amid fears of a growing political crisis in the country.
Yields on the country's benchmark 10-year bonds moved above 8% for the first time since November in early trading. Yields on the country's benchmark 10-year bonds moved above 8% in early trading, while the stock market fell more than 6%.
The main stock market also fell more than 6%. Earlier this week, the resignations of two leading ministers put pressure on Portugal's coalition government.
Earlier this week, two leading ministers resigned from the coalition government, which has been in charge since Portugal requested a bailout in 2011. The European Commission President, Jose Manuel Barroso, said he was following the situation "with concern".
It received a bailout worth more than 78bn euros ($102bn; £67bn) in May 2011, on the condition it implemented austerity measures. Portugal received a bailout worth more than 78bn euros ($102bn; £67bn) in May 2011, on the condition it implemented austerity measures.
The sharp rise in bond yields suggests investors are less confident that Portugal will be able to repay its international debts.
Long recessionLong recession
Demonstrators have taken to the streets in recent days to protest against planned austerity reforms.Demonstrators have taken to the streets in recent days to protest against planned austerity reforms.
On Monday, Finance Minister Vitor Gaspar resigned, followed by Foreign Minister Paulo Portas, who heads the Popular Party - the junior partner in the coalition government.On Monday, Finance Minister Vitor Gaspar resigned, followed by Foreign Minister Paulo Portas, who heads the Popular Party - the junior partner in the coalition government.
The resignations came amid disagreements over Portugal's austerity path.The resignations came amid disagreements over Portugal's austerity path.
Prime Minister Pedro Passos Coelho has pledged to stay in office, but it is not clear whether the Popular Party will continue to work with him.Prime Minister Pedro Passos Coelho has pledged to stay in office, but it is not clear whether the Popular Party will continue to work with him.
Local media reports say that two more ministers are expected to resign.Local media reports say that two more ministers are expected to resign.
The President, Anibal Cavaco Silva, said he would be meeting members of all parties, including the prime minister, in the coming days in an effort to resolve the growing crisis.
Later on Wednesday he will meet the leader of the main opposition Socialists.
Portugal has been in recession for two years and the economy is expected to contract by 2.3% this year.Portugal has been in recession for two years and the economy is expected to contract by 2.3% this year.
'Delicate situation'
The sharp rise in bond yields suggests investors are less confident that Portugal will be able to repay its international debts.
"The political uncertainty in Portugal has really spooked markets," said Ishaq Siddiqi, a financial market strategist at ETXCapital."The political uncertainty in Portugal has really spooked markets," said Ishaq Siddiqi, a financial market strategist at ETXCapital.
"The spectre of another bailout for the country increases on fears of a collapse of the government [that] will result in the country not being able to meet its loan obligations with its international creditors.""The spectre of another bailout for the country increases on fears of a collapse of the government [that] will result in the country not being able to meet its loan obligations with its international creditors."
Yields on Spanish and Italian bonds have also risen higher, while Europe's major stock markets are down by between 1% and 2%. Yields on Spanish and Italian bonds have also risen, while Europe's major stock markets are down by between 1% and 2%.
Mr Barroso said: "The initial reaction of the markets shows the obvious risk that the financial credibility recently built up by Portugal could be jeopardised by the current political instability.
"If this happens it would be especially damaging for the Portuguese people, particularly as there were already preliminary signs of economic recovery.
"This delicate situation requires a great sense of responsibility from all political forces and leaders."