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Portugal banks urging govt to seek loan.

Portugal's biggest banks will stop buying government bonds and are urging the caretaker administration to seek a short-term loan to secure financing until a June 5 election, business daily Jornal de Negocios reported on Tuesday.

The heads of Banco Espirito Santo, Millennium bcp and Banco BPI met with the governor of the Bank of Portugal to pass on their views on Monday, Jornal said.

Nobody at the Bank of Portugal was immediately available to comment on the report.

But Carlos Santos Ferreira, head of Millennium bcp, Portugal's biggest private bank, said in a television interview late Monday that it was "indispensable that the country seeks a short-term loan".

A spokesman from the bank would not comment on whether the bank had decided not to buy government debt.

A short-term loan has been mooted by Portugal's opposition Social Democrats as a solution to growing financial uncertainty caused by the resignation of the government after parliament rejected its latest austerity measures.

The party's leader, Pedro Passos Coelho, suggested such a move in a Reuters interview last week.

A short-term loan, from the International Monetary Fund or European Union, could sooth concerns around two big bond redemptions the country faces in April and June. Such a loan would be separate to any eventual bailout, which economists say is virtually inevitable.

Moody's cut Portugal's sovereign debt by one notch on Tuesday, saying it believed an incoming government would need to seek financing support from the European Union as a matter of urgency.

Daily Publico, without citing its sources, also reported on Tuesday that requesting a short-term loan was under consideration.

Jornal de Negocios ran a separate column on Tuesday titled "Game over, we have lost, Mr Engineer," referring to Prime Minister Jose Socrates who has insisted the country needs no outside help.

Socrates vowed on Monday to keep resisting a foreign financial rescue for the debt-laden country, including the short-term loan suggested by the opposition.

Asked if a short-term loan from the International Monetary Fund was possible if the country faces immediate financing problems, Socrates told RTP television: "I don't know of any IMF financing line that would not enforce a programme with conditions.

"All programmes that have been negotiated so far were very severe in terms of measures demanded from a country," he said.

Portuguese bond yields have shot higher since the government resigned last month and credit rating agencies have downgraded Lisbon's creditworthiness.

Concerns over Portugal's ability to finance itself have spiralled as the caretaker Socialist government, which is in place until elections on June 5, has said it does not have the power to request a bailout.

Economists overwhelmingly expect Portugal to need a bailout like Greece and Ireland.

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Publication:Financial Mirror (Cyprus)
Geographic Code:4EUPR
Date:Apr 5, 2011
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