Portugal sold 1.65 billion euros in an extraordinary sale of short-term bonds on Friday, but analysts said its high cost of borrowing was still likely to force it into an international bailout within months.
Revised budget figures for last year have added to Lisbon's woes as it faces making 12 billion worth of debt payments in April and June that investors speculate may push state finances over the edge.
President Anibal cavaco Silva on Thursday called a snap election for June 5 following the government's resignation earlier this month and warned the next government faced an unprecedented economic crisis.
The average yield on the June 2012 bond rose to 5.793 percent from 3.159 percent in the sale in July. The same maturity yielded over 7 percent bid in the secondary market earlier on Friday and analysts expected the bond to yield at least 6.5 percent.
Today's result will boost confidence it will be able to fund itself until a new government is sworn in toward the end of June, said Rabobank strategist Richard McGuire.
This does not, though, obviate the fact that it is fundamentally insolvent - i.e. it is clearly in a situation where debt will have to be issued to cover servicing costs thereby resulting in a snowballing of liabilities.
Orlando Green at Credit Agricole in London said that although the IGCP debt agency seemed to have lined up investors for the auction beforehand, the yield level being below the secondary market was a surprise.
I don't know how sustainable it is, but this auction reduces the fear that they won't be able to repay their debts coming due this month, he said.
Still, they can't borrow at 8-9 percent going forward, so it's unrealistic to expect they won't be bailed out in the end.
Bond yields spiked to new record highs on Thursday on the back of figures showing the 2010 budget deficit was more than a percentage point higher than the 7.3 percent of GDP targeted by the government. They were flat on Friday.
Prime Minister Jose Socrates, who now heads a caretaker government, has resisted asking for an international bailout after Greece and Ireland, but his resignation last week after parliament rejected budget austerity threw the country into political crisis and prompted downgrades by rating agencies.
Portugal has to redeem 4.2 billion euros of bonds on April 15 and 4.9 billion euros in June.
The premium investors demand to hold Portuguese benchmark 10-year bonds was practically unchanged at 536 basis points on Friday after Thursday's euro lifetime record highs.
(Reporting by Sergio Goncalves, Shrikesh Laxmidas and Andrei Khalip; writing by Andrei Khalip, editing by Patrick Graham)