Portugal bail-out: Talks begin over bail-out package

Senior officials from Europe and the International Monetary Fund are meeting Portuguese Finance Minister Fernando Teixeira dos Santos in Lisbon.

Meanwhile Greece, which received a bail-out last year, denied reports that it would have to restructure its debts.

The euro lost 1% of its value against the dollar as a result of the reports.

It was trading at $1.4275. Against the pound, it was down 0.7% at 87.78 pence.

The yields on benchmark government bonds for both Portugal and Greece also reached their highest levels since the introduction of the euro in 1999 on concerns over the European debt crisis.

"Greece is in such a difficult position that restructuring appears unavoidable, sooner rather than later," Daniel Gros from the Central for European Policy Studies told BBC World.

"Most would say sooner would be better than later, but the politicians disagree, they would like to hold on as long as possible," he added.

Bank of Greece governor George Provopoulos said restructuring its debts - meaning changing the terms - was "neither necessary nor desirable".

And the European Commission denied there were any talks being held on a possible restructuring of Greece's debt.

The market nervousness also spread to Spain, which had to pay sharply higher interest rates to borrow money for 12 months at an auction on Monday.

The heavily-indebted state, which has often been talked about as the next state that could face a sovereign debt crisis, paid a rate of 2.77%, up from 2.13% last month; Kazinform cites BBC News.

See www.bbc.co.uk for full version