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Portugal to raise 1bn euros as debt woes continue

Portugal's bid to raise money in the financial markets on Wednesday could be de-railed by the country's banks, analysts have warned.

Lisbon must raise about 1bn euros (£873m) to help service its debts ahead of a re-financing due in the summer.

But some of the country's own banks say they may not buy government debt unless Lisbon applies for money from the eurozone's emergency bail-out fund.

The government insists it does not need a bail-out.

Analysts say Portugal's fund-raising on Wednesday may still succeed despite the banks' ultimatum.

But the success may come at a high price. Portugal's cost of borrowing rose to more than 10% for the first time since the launch of the euro.

The jump in yields was sparked by ratings agency Moody's downgrading Portuguese government debt by one notch, to Baa1 from A3.

The rating is still investment grade - but only just.

It is the second downgrade by Moody's in less than a month and follows fellow agency Standard & Poor's cut last week.
'Confidence crisis'

Lena Komileva, global head of G10 strategy at Brown Brothers Harriman, told the BBC that the financial situation in Portugal "has become critical".

She said: "The government is not just facing a confidence crisis, it is facing a classic, text-book liquidity crisis in the markets.

"The Portuguese banks' attempts to force Lisbon towards seeking some sort of bridge loan [from the bail-out fund] increases the risk of a failed auction [on Wednesday]," she said.

Portugal has to repay more than 4.2bn euros in loans on 15 April, and then another 4.9bn euros in June.

Moody's said Tuesday's downgrade was "driven primarily by increased political, budgetary and economic uncertainty".

Last week, the Portuguese government admitted it had missed its budget deficit target for 2010.

Moody's said the increased uncertainty in the country heightened the risks that "the government will be unable to achieve [its] ambitious deficit reduction targets" in the next three years.

BBC News

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