Bailed-out Portugal pays less to borrow $2.6 bln

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LISBON, Portugal (AP) — Portugal's interest rates fell steeply in a short-term debt auction Wednesday where it borrowed €2 billion ($2.61 billion), evidence that the European Central Bank's recently-unveiled plan to intervene in bond markets is boosting investor confidence.

The Treasury and Public Debt Management Agency said it raised €1.291 billion in 18-month bills, paying a rate of 2.967 percent compared with 4.537 percent in the last comparable auction in April. It said there was market demand for double the amount on offer.

It also raised €709 million in 6-month bills at a rate of 1.7 percent, down from 2.292 percent in July and with demand three times higher than the amount offered.

The Treasury had planned to raise up to €1.75 billion in the placement.

The drop in borrowing rates is a positive sign for Portugal, which needed a €78 billion bailout last year when, after a decade of weak growth, it was engulfed by the financial crisis plaguing eurozone countries.

Portugal is locked into a debt-reduction and economic reform program demanded by lenders in return for the financial rescue. It has earned praise for abiding by the agreement despite a recession which is forecast to extend into next year and a record unemployment rate of 15.7 percent.

Investors have also been heartened by the European Central Bank's recent pledge to support struggling countries like Portugal by purchasing unlimited amounts of their government debt.

The successful auction Wednesday "was mostly due to the steps taken by the ECB," Pedro Santos, a broker at Banco Espirito Santo in Lisbon, said.

"Obviously, the fact that Portugal is complying with the (bailout) agreement was a big help, but the ECB's measures are broader and show the world it will do everything it can to protect the eurozone and weaker countries like Portugal," he said.

Also Wednesday, Portugal's Finance Minister, Vitor Gaspar, met in Berlin with his German counterpart, Wolfgang Schaeuble, to discuss the country's recovery. In a joint statement issued following the meeting, the two ministers said they were encouraged by Portugal's "enhanced credibility" and that Germany would continue to push Portuguese authorities to "continue addressing challenges and implementing policy conditionality."

In spite of the progress Portugal has made, the austerity measures have been very unpopular with Portuguese people. Over the weekend, large numbers of ant-austerity demonstrators took to the streets of Lisbon, some throwing tomatoes and fireworks at the Portuguese headquarters of the International Monetary Fund.

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