* Markets expect little progress on Greece at Eurogroup
* Portugal aid package to be approved, any rally seen brief
* Bunds seen bought on dips; DSK arrest feeds risk aversion
By Marius Zaharia
LONDON, May 16 (Reuters) - Greek government bonds were stable on Monday, but pressure could resume if a euro zone finance ministers’ meeting later in the day fails to show progress in tackling the country’s debt crisis.
Portugal’s bonds may find some support from a likely approval of its 78 billion euro bailout package, but any rally is seen short-lived given lingering speculation that Greece may have to restructure its debt and new uncertainty about the handling of the crisis after the arrest of IMF chief Dominique Strauss-Kahn.
Euro zone finance ministers were seen only telling Greece it must deliver on agreed fiscal and privatisation targets if it wants new emergency financial aid next year. [ID:nLDE7492FT]
“I imagine it would be a short-term rally for Portugal ... but only of 20-30 basis points,” said ING strategist Alessandro Giansanti.
“Until the restructuring situation with Greece is solved and we see good macroeconomic data in Portugal, anything will be short-lived. I don’t think this meeting will come up with a defined plan for the situation in Greece.”
Conversely, he said, if a commitment for more aid to Greece emerged from the meeting, Greek bonds could rally in the short term before the restructuring theme comes back into focus.
The question of whether Greece will have to restructure its debt soon or can get further financial aid will probably be answered after an International Monetary Fund assessment of its debt figures in June. But uncertainties have been heightened by the weekend arrest of Strauss-Kahn, whose lawyers say he will deny charges of sexual assault. [ID:nN15241568] The IMF chief has played a pivotal role in brokering bailouts across Europe.
“He’s always been quite active in the bailouts that have gone on and maybe it doesn’t really help. The IMF is bigger than one man, but I‘m sure the market will take it slightly negatively,” one trader said.
Strauss-Kahn had been due to meet German Chancellor Angela Merkel on Sunday and join euro zone finance ministers on Monday to discuss the bloc’s debt crisis and how to handle Greece.
Peripheral bonds were steady on Monday. Portuguese ten-year yield spreads over benchmark German Bunds were flat at 694 basis points, while five-year credit default swaps fell 23 bps on the day to 595 bps in anticipation of the aid approval.
EU leaders are also unlikely to discuss new bailout terms for Ireland, whose efforts to secure lower funding costs have been rebuffed because it has resisted German and French pressure to raise its corporate tax rate.
Bunds were steady on Monday, but with risk aversion showing few signs of easing, traders said investors will continue to buy Bunds on dips. Bund futures FGBLc1 were last 4 ticks lower on the day at 124.38, after hitting an intra-session high at 124.62.
Futurestechs technical analyst Clive Lambert said a break above Friday’s high of 124.63 will open the way to 125.10, a level not seen since early January.
“If equity markets continue to see weakness we will inevitably attract a bid here, and our current ‘buy dips’ suggestion holds firm,” he said.
Support was seen at last week’s 123.58. (Reporting by Marius Zaharia, Editing by Ruth Pitchford)