Portugal in front of lower rate and high demand (AP) (19-01-2011)

LISBON -- Debt-stressed Portugal raised euro750 million ($1 billion) in a Treasury bill sale on Wednesday, with a lower interest rate and high demand reflecting an easing in tension about the country's financial woes.

The country is expected to eventually seek a bailout like Greece and Ireland, though the government insists it can restore fiscal health without help.

The government debt agency said the yield on the 12-month bills was 4.03 percent, down sharply from 5.28 percent on the same bills last month. Demand was three times the amount on offer.

Portugal needs to raise up to euro20 billion from financial markets this year and European leaders are keen to prevent market contagion, especially preventing jitters about Portugal spreading to much bigger Spain, which would be much more expensive to rescue.

Portugal last week raised euro1.25 billion in bonds maturing in 2014 and 2020. The yield on the 2020 bond dipped to 6.716 percent from 6.806 percent the last time the government tapped investors in November, raising hopes it is restoring investor confidence with its austerity program of tax hikes and pay cuts.

Moody's Investor Services has warned it may cut its A1 rating on Portugal, while Standard & Poor's Ratings Services is also considering a downgrade.

Investors are concerned about Portugal's prospects for growth, with most forecasts predicting the economy will slide back into a recession this year.

Source: AP