Debt-heavy Portugal's hopes of avoiding a financial bailout were fading fast Wednesday as the country's borrowing rates continued their upward spiral to hit new euro-era highs.

The yield on the 10-year government bonds rose another 0.03 percentage point to 8.02 per cent, the highest level since the country joined in the founding of the 17-nation euro currency in 1999.

Portugal accounts for less than 2 per cent of the bloc's gross domestic product, but its troubles could weaken market confidence in the euro zone's efforts to beat a sovereign debt crisis that has plagued it for more than a year. Europe has already had to come up with multibillion-euro bailouts for Greece and Ireland.

Lisbon's rise in borrowing rates came a day after Standard & Poor's downgraded its credit rating on Portugal's bonds to triple-B-minus, just one notch above junk status.

The agency said Portugal's high debt load and poor growth prospects make it likely the country will wind up needing a financial rescue package. Analysts estimate it would need up to €80-billion ($113-billion U.S.).

Portugal's problems have metastasized over the past week – the government quit, rating agencies have three times downgraded its credit worthiness, interest rates have surged, and strikes by workers angered by austerity measures have shut down transit systems.

Portugal faces a key test in April when it has to rollover €4.5-billion. Another crunch comes in June when it has to find €4.96-billion for another bond repayment.

Officials say they have so far raised about one-third of the €20 billion the country needs to finance its economy this year and can meet the April settlement.

But the markets think that June's auction could well be the catalyst for a bailout request, according to Marc Ostwald, market strategist at Monument Securities.

The rising borrowing costs are adding a financial burden to the country's already acute difficulties.

The economy is poorly equipped to generate the kind of growth it needs to pull out of the market turmoil. Low productivity and a lack of wealth-generating industries have held the country back for more than a decade as its growth averaged less than 1 per cent a year, forcing it to borrow more and more money.

As Portugal heads for elections likely to be held in late May or early June, the outgoing government and all opposition parties insist they don't want a bailout that they say would hurt the nation's reputation and lock it into austerity policies for years to come.

The financial crisis is the worst since investors fled Portugal following a 1974 army coup known as the Carnation Revolution. Then, the International Monetary Fund provided two bailouts in the space of eight years.

Portuguese authorities are hoping Brazil, whose economy is flourishing, might provide some relief. Brazilian President Dilma Roussef said in a newspaper interview published Wednesday that she is looking at how to help Portugal.

“One of the possibilities is buying part of Portugal's sovereign debt,” she was quoted as saying by Diario Economico.

However, Brazilian laws limit the purchase of public debt to countries with a triple-A rating, she told reporters in Coimbra, central Portugal, where she was on a visit.

She said that restriction might be circumvented by asking for special loan guarantees, media reported.

Article provided by Globe and Mail

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