Portugal denies report on bailout, eyes budget

Portugal denied on Friday a news report that it is under pressure from most euro zone countries and the European Central Bank to seek a bailout.

"This news article is completely false, it has no foundation," said a government spokesman. Lisbon is preparing to pass an austere 2011 budget that it hopes can deliver tough spending cuts to ward off the euro zone debt crisis.

The Financial Times Deutschland reported on Friday that a majority of euro zone countries and the European Central Bank were pressing Portugal to follow Ireland and Greece and seek aid from the European Union and International Monetary Fund.

Economists have said Portugal is the likely next weak euro zone country to need a financial rescue as it struggles with low competitiveness and a high budget deficit.

Prime Minister Jose Socrates has repeatedly denied that his country needs a bailout.

The government aims to cut the deficit to 4.6 percent of gross domestic product next year from 7.3 percent this year.

Still, Portugal's risk premiums, measured by its 10-year bond yields compared to safer German Bunds, hit record highs this week as concerns rose after Ireland sought a bailout. The spread last traded at 458 basis points on Friday, compared with the record high of 481 basis points.

Portugal's budget deficit is considerably lower than that of Ireland and it has none of the banking problems of Dublin. But Lisbon has still been targeted by investors as possibly needing a bailout because of its spiralling debt costs.

Portugal's parliament prepared to approve on Friday an austere 2011 budget that aims to deliver tough spending cutbacks and tax increases that are central to the country's efforts to ride out the euro debt storm.

The minority Socialist government's budget is virtually guaranteed to pass thanks to support from the opposition Social Democrats, concluding many months of political bickering which at one point threatened the government's survival.

The parliament debate was due to start at 1000 GMT.