UPDATE 3-ECB's Constancio "relatively pessimistic" on Portugal

* Imperative need to cut budget deficit

* Believes deficit can be fixed in long-term

* Government rules out tax hike

* Minister says Greece comparisons unfair, unease can spread

(Adds finance minister, updates spreads)

By Sergio Goncalves and Shrikesh Laxmidas

LISBON, Feb 2 (Reuters) - Portugal needs to make significant economic adjustments to reduce its budget deficit, Bank of Portugal governor Vitor Constancio said on Tuesday, adding he was relatively pessimistic about the short-term outlook.

Portugal's deteriorating public finances have come into focus in recent weeks in the wake of debt problems for fellow euro zone member Greece. The country's bonds have been hit by these concerns and spreads widened again on Tuesday.

Constancio, who is also a European Central Bank Governing Council member, told a conference Portugal's economy was in a "serious and difficult moment" but in the long-term public finances are sustainable.

"Portugal has once again a budget deficit which is high and there is an imperative need to reduce it," he said, adding the country would need painful spending cuts and most likely a hike in indirect taxes, like value-added tax, to reduce the deficit.

But Economy Minister Jose Vieira da Silva said the government had no short- or medium-term plans to raise taxes.

"It (a tax rise) is Dr Constancio's opinion and the government does not subscribe to this point of view," he said.

Raising taxes could be deeply unpopular with the Portuguese, who have faced years of austerity as Portugal had its own homegrown crisis earlier this decade before the global economy spluttered in 2008.

Portugal's budget deficit soared to 9.3 percent of gross domestic product last year from 2008's 2.6 percent as the country grappled with its worst recession in decades. The Socialist government has pledged to reduce it to below 3 percent of GDP by 2013 via additional spending cuts in 2011 onwards.

In the 2010 budget, presented last week, the government said it would freeze public sector wages and anticipated a small rise in revenues, which should allow it to bring the deficit down to 8.3 percent this year.

"Personally I have an outlook which I consider relatively pessimistic about our short-term developments, given that the difficulties and adjustments we have to carry out really are of great significance," Constancio said.

Last week, ratings agencies demanded a clear plan of further Portuguese budget deficit cuts after this year's budget plan failed to meet their concerns. Their warnings, added to the overall market concerns, caused bond spreads to blow out.

Finance Minister Fernando Teixeira dos Santos warned the unease in financial markets over Greece's fiscal problems could spread to other countries after hitting Portuguese bonds even though the country's situation "is completely different from Greece."

"Any attempt to draw parallels between the two situations (Greece and Portugal) is unjustified," Teixeira dos Santos said.

The premium investors demand to hold 10-year Portuguese government bonds over German Bunds rose five points to 125 bps on Tuesday after retreating from nearly 135 points reached earlier in the day.

Prime Minister Jose Socrates told French newspaper Liberation in an interview published on Tuesday he did not understand markets' suspicion of his country.

"I really feel that the markets don't care about economic reality, and instead base their judgement on prejudices and impressions," he was quoted as saying.

Felipe Garcia, an analyst at Informacao de Mercados Financeiros, said Constancio's "diagnosis is late but it is correct".

"We will now see if the government has the courage to take the necessary measures," he said.

The Socialist government expects growth of 0.7 percent this year after a contraction of 2.6 percent in 2009. Unemployment is at its highest since the 1980s, at 9.8 percent.

Constancio said he expected Portugal to grow below the euro zone average, but believed Portugal's public finances could be put on a sustainable path over time.

"In the long-term Portuguese public finances are on a sustainable trajectory," he said. (Additional reporting by Filipa Cunha Lima; writing by Axel Bugge and Andrei Khalip; editing by Ron Askew)