Portugal raises $2.3 B despite bailout fears

LISBON, Portugal (AP) – Debt-stressed Portugal got some respite from its financial troubles Friday when it managed to borrow 1.645 billion euros ($2.3 billion) in a bond auction.

However, the money it raised didn’t come cheap amid widespread expectations that Portugal will soon have to join Greece and Ireland in requesting a bailout.

The government debt agency said it’s paying a 5.8 percent interest rate on the bonds, which mature in June 2012. The yield in a 12-month bond auction last month was much lower at 4.33 percent.

One bright spot was that the agency had hoped to collect up to 1.5 billion euros in the auction, but with demand 1.4 times higher than the amount on offer it opted to take more.

Portugal’s high debt load and weak growth have unnerved markets and unsettled the wider 17-nation eurozone which has fought for more than a year to plug the continent’s sovereign debt crisis.

The Portuguese are fighting hard to avoid the same fate as Greece and Ireland, which last year had to get financial help from their euro partners as well as the International Monetary Fund.

“Despite everything, Portugal can still find investors who believe it will be able to settle its debts,” said Filipe Silva, debt manager at Banco Carregosa. “With this bond auction Portugal has managed to buy some time.”

However, Portugal’s financial situation is looking increasingly dicey.

Rating agencies have downgraded Portugal’s credit worthiness three times in recent days as the country’s financial health deteriorated. Standard & Poor’s cut its Portuguese bond rating to just one notch above junk status.

Political uncertainty after the government’s resignation last week has only added to the concerns.

The yield on Portugal’s 10-year bonds has risen to an unsustainable 8.5 percent – roughly the same level that forced Athens and Dublin to accept their rescue packages.

Portugal faces a key test later this month when it has to pay 4.5 billion euros on debts that are due. Another crunch comes in June when it has to find 4.96 billion euros for another bond repayment.

The debt agency said it held the sale, which it announced less than 24 hours before, because of “specific demand.” It did not elaborate, but unconfirmed media reports said Portugal already had buyers before the auction, possibly from Brazil and China, which have previously indicated they would support the country.