Portugal feels 1bn pain

Markets put the squeeze on embattled Portugal today as the nation was forced to pay through the nose to borrow 1 billion (£878 million) in short-term debt.

Portugal - in political limbo and heading towards an all-but inevitable bailout - paid 5.9% for borrow for 12 months, compared with 4.3% in its last auction three weeks ago. Its cost of borrowing for six months jumped to 5.1% from 3%.

Crédit Agricole strategist Peter Chatwell warned: "Funding at these levels can only be viewed as a temporary measure."

The latest auction comes after reports that Portugal's main banks were threatening to stop buying the nation's bonds unless it sought a rescue.

Prime Minister José Socrates' government collapsed three weeks ago after failing to push through spending cuts, but a general election is still two months away. Ratings agency Moody's has warned that a new government would have to seek a bailout "as a matter of urgency".