PORTUGAL AND Belgium are coming under renewed market pressure as investor anxiety returns to the euro zone and top-level figures line up to deny any new EU-IMF bailouts are in the offing.

With the euro closing yesterday at a four-month low against the dollar, senior European diplomats will take stock of the situation tomorrow at their first meeting since Christmas. The engagement comes five days before euro zone finance ministers gather in Brussels for their first talks of the year.

The European Central Bank (ECB) stepped up its purchases of Portuguese bonds yesterday as Lisbon prepares for a crucial test of investor sentiment with the auction tomorrow of €1.25 billion in five- and 10-year bonds.

The Portuguese government, whose 10-year bond yields have risen to record levels above 7 per cent, has been denying any external intervention is required or imminent. Many market participants believe otherwise, however, with the cost of insuring against any default on the country’s debt also on the rise.

There was similar pressure yesterday on the price of Irish credit default swaps – as this form of insurance is known – and reports of renewed ECB purchases of Irish debt. Such pressure had marginal impact in real terms however as the EU-IMF rescue means the Government has no need to raise money in the private markets for up to two years.

Weekend reports by Reuters and German magazine Der Spiegel which said prime minister José Sócrates was coming under pressure from Berlin and Paris to follow Ireland now to avert the threat of contagion were denied in Lisbon and further afield.

“There is no discussion to this effect, and it is not envisaged at this stage on such a possibility, be it for Portugal or any other member state,” said a Brussels spokesman for EU economics commissioner Olli Rehn.

While German finance minister Wolfgang Schäuble and his Spanish counterpart Elena Salgado also dismissed the reports, official sources acknowledge in private there is acute concern about Portugal’s prospects.

In spite of the public position adopted by Mr Sócrates’s government, some observers believe an external intervention may well be unavoidable.

According to Germany’s Frankfurter Allgemeine Zeitung newspaper, Berlin would prefer Lisbon to seek aid quickly if necessary rather than draw out the process over “three or six months”.

The country’s present situation is seen in some eyes to be similar to Ireland’s in the run-up to the EU-IMF intervention, with well-placed sources saying any failure to reverse the rise in Portuguese bond yields would have grave implications.

Although news that the ECB was again in the market for Portuguese debt provided a measure of confidence, this was seen as nothing other than a temporary balm. After the yield on its 10-year paper rose as high as 7.45 per cent early yesterday, the interest remained stubbornly high at 7.31 per cent even after some of the heat dissipated.

The renewed turmoil is weighing also on Belgium, where worries about the high national debt are compounding tension over the failure of the country’s linguistically-divided leaders to form a government seven months after a general election.

King Albert II yesterday ordered the caretaker government to draft a budget plan for 2011 which will cut the budget deficit to 4.1 per cent from 4.8 per cent in 2010. The target implies cutbacks or tax increases of €1.8 billion.

Although diplomatic and other sources say the mounting force of market pressure may yet persuade Belgian leaders to agree a power-sharing deal, the latest effort to broker a compromise came to nought last week and the king’s mediator shows little interest in renewed talks. Amid the turmoil, investors have been demanding near record premiums over the price of German debt to hold Belgian paper.

Spain is also returning to the market this week with the sale on Thursday of €2 to €3 billion in bonds. The sale is important for the country, which has repeatedly denied it has any requirement for external aid, as it will be a crucial gauge of sentiment. It is widely acknowledged that any Portuguese intervention would intensify pressure on Madrid.