Markets warm to European debt, Portugal pressure eases

Portugal, which many analysts believe will need a second EU/IMF bailout after Greece, proved its ability to tap short-term debt markets when it sold 1.5 billion euros of three- and six-month bills at lower yields. That helped bring down the market yield on its 10-year bonds from a record 17.4 percent on Tuesday to a still high 15.8 percent.

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In Greece, Prime Minister Lucas Papademos sought backing from political leaders for more austerity measures, with the International Monetary Fund warning that long-term, cross-party commitment to reforms is key to securing a new bailout.

With a long-delayed agreement with private sector creditors to cut the country's debt by 100 billion euros nearly wrapped up, the EU, the IMF and Greece are racing to complete talks on a 130-billion-euro bailout by the end of this week.

"We need an agreement with political leaders for the negotiations with the troika," said a government official who declined to be named.

EASE GREEK PAIN

The IMF's chief negotiator with Athens, Poul Thomsen, stressed that international lenders needed to be confident that whoever wins elections pencilled in for April accepts the key objectives of a new Greek adjustment programme.

"We need assurances that whoever is in power after the election and reasonably wishes to make some changes in economic policy will make sure they are in line with the targets and the basic framework of the agreement," he told daily Kathimerini.

But Thomsen also called for a new policy mix, which could help get political parties on board.

"We will have to slow down a little as far as fiscal adjustment is concerned and move faster - much faster - with implementing reforms," he said, adding that there are limits to the pain that Greek society can take.

The deal is aimed at reducing Greece's debt to 120 percent of gross domestic product in 2020 from around 180 percent now, but it hinges on Athens meeting fiscal targets and reform benchmarks which is has repeatedly missed so far.