Instant view: Portugal says it needs EU aid

NEW YORK (Reuters) - Portugal's caretaker government said on Wednesday it needs financing from the European Union, marking a turnaround after resisting asking for aid for months despite sharply deteriorating financial conditions.

KEY POINTS: * Portugal's situation worsened last month after the government resigned, sending bond yields soaring, sparking a series of rating downgrades and a warning by local banks that they may no longer be able to buy government debt. * "In this difficult situation, which could have been avoided, I understand that it is necessary to resort to the financing mechanisms available within the European framework," said Finance Minister Fernando Teixeira dos Santos.

COMMENTS:

DAVID MANN, HEAD OF RESEARCH, STANDARD CHARTERED, NEW YORK

"I think markets are going through a bit of crisis fatigue. We've seen so much bad news, and while people are well aware of the risk associated with peripheral euro zone countries, they believe that ultimately some solution will be found. Also, an ECB rate hike is seen as a foregone conclusion, and there's a growing sense that the hike will be delivered with hawkish comments, suggesting more hikes to come. It's likely peripheral countries will be facing inappropriate rates for their domestic needs, but the core countries still dominate. Germany is doing well, for example. We wouldn't be surprised to see the euro test $1.45, as breaking $1.4280 was quite significant."

VASSILI SEREBRIAKOV, SENIOR CURRENCY STRATEGIST, WELLS FARGO,

NEW YORK:

"It's somewhat puzzling this lack of euro reaction to Portugal admitting it needs aid. I guess the market is viewing this news as a foregone conclusion. This is a big financial step for Portugal and it's obvious that Portugal cannot finance itself. As to why the euro doesn't care, there are other themes playing out in the market. Investors are obviously focused on the ECB rate hike on Thursday. And in an environment where yield is the market's main focus, investors are bidding up the euro because of the prospect of more interest rate increases."

DAVID LEDUC, CHIEF INVESTMENT OFFICER, STANDISH, A DIVISION OF

BNY MELLON ASSET MANAGEMENT, BOSTON:

"In general, we've been concerned about Portugal's fiscal challenges and not only think they need short-term financial help but also a high probability that Portugal has to restructure their debt.

"We remain concerned about it and the political difficulties add a challenge to what they have to do.

"The political stress and economic difficulties highlight the severe challenge Portugal and other countries have in pursuing austerity packages. When you can only control fiscal policy, not monetary policy, then you don't have all the levers available. When you only can cut and can't do other things to make yourself more competitive, such as devaluing your currency, that's a challenge."

DAVID DIETZE, CHIEF INVESTMENT STRATEGIST, POINT VIEW FINANCIAL

SERVICES, SUMMIT, NEW JERSEY:

"In some ways it is a positive -- I think Portugal was in denial. On this side of the pond no one understood exactly how Portugal was going to be able to dig out of its problems without getting aid. We have seen Greece and Ireland ultimately have to go hat in hand, and traders every day have been looking at the widening spreads between the German sovereign debt and the Portuguese sovereign debt and wondering how it all ends."

ERIC GREEN, CHIEF ECONOMIST AND HEAD OF RATES STRATEGY, TD

SECURITIES, NEW YORK:

"That was fully expected. After the austerity plan was voted down it was fully expected. The euro is hitting 14 month high today, markets won't react to this."