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Credit ratings agency Moody's cut Portugal's sovereign debt by a notch, saying the country's caretaker government will need to seek financing support from the European Union. However the country's cost of borrowing has now escalated making the situation worse.
Pressure keeps mounting on indebted euro zone country Portugal.
Credit ratings agency Moody's has cut Lisbon's sovereign debt rating by one notch.
And it says whichever government takes over after a upcoming election will need to urgently seek financial support from the European Union.
The news knocked the euro off a five-month high against the dollar.
Financial markets are convinced Portugal will have to follow Greece and Ireland in asking the EU and the IMF for a bailout.
The country's borrowing costs have soared to their highest level since the euro was launched - and are expected to exceed 10 percent in the coming days.
Joao Periera Leite from Banco Carregosa in Lisbon says such yields are untenable.
[Joao Pereira Leite, Heaf of Investment at Banco Carregosa]:
"We need more help, we need to be able to finance our economy at reasonable rates, I should say something around five percent, which is a lot."
Prime Minister Jose Socrates, who resigned after parliament rejected fresh austerity measures, has made a point of not asking for external help.
That means Portugal may remain in limbo until after the election on June 5th.
A Portuguese newspaper said some of the country's biggest banks are going to stop buying government bonds.
The heads of Millenium bcp, Banco Espirito Santo and Banco BPI are reportedly urging the caretaker administration to seek a short-term loan, to secure financing until the election.