Portugal’s bond issue sets a Europe debt test

Portugal's borrowing costs surged today as it raised 500 million (£425 million) in the year's first test of appetite for debt from Europe's potential bailout candidates.

The nation — struggling to avoid the fate of Ireland and Greece — was forced to pay 3.68% to borrow for six months, almost double the 2.05% paid in September, and more than six times more than a year ago.

The sale of short-term bills comes ahead of an estimated 20 billion in bond sales planned this year as Portugal struggles to convince
investors that it can tackle its budget deficit.

Spain and Italy, also grouped among the eurozone's riskier sovereign bets, will tap international markets for billions next week in closely watched bond auctions.

But the savage austerity measures undertaken by a host of weaker nations have raised question marks over their ability to sustain growth, and official figures showed business confidence in Portugal sliding for the third month in a row today.

Meanwhile, Spain's services sector, which accounts for more than 60% of the eurozone's fourth-largest economy, shrank at its fastest pace in a year in December, according to the latest Markit purchasing managers' index. The country has been hit by a property collapse, and is wrestling with a jobless rate of more than 20%.