LISBON, July 4 Portugal's bond yields dropped on
Thursday and its stock market rose, reversing some of the
previous day's sharp losses, as the prime minister and his
junior coalition partner sought to defuse a political crisis.
After a first inconclusive meeting overnight, premier Pedro
Passos Coelho and his rightist CDS-PP allies are due to meet
again early on Thursday to try to heal a rift that risks
derailing Lisbon's exit from its international bailout.
Diario Economico newspaper cited a government source as
saying Passos Coelho was hoping to find a solution that would
prevent a snap election and preserve his coalition government to
take to the president later on Thursday.
The resignations of finance minister Vitor Gaspar and
foreign minister Paulo Portas this week have threatened to
deprive the government of a majority in parliament.
Another newspaper, Diario de Noticias, said the overnight
meeting had been "very constructive", but inconclusive.
The returns investors demand to hold Portugal's 10-year
bonds dropped to 7.3 percent after spiking to more than 8
percent on Wednesday for the first time since November. Lisbon's
PSI 20 stock index was up 3.3 percent after sliding 5.3
percent the previous day, as hopes grew that the government can
resolve its differences and avert an early election.
Analysts and local media said a solution to the worst rift
since 2011 could involve a government reshuffle, giving more
clout to the junior partner, the rightist CDS-PP, and possibly
an easing of austerity policies implemented under the bailout.
President Anibal Cavaco Silva began crisis talks with
political parties on Wednesday that will continue on Thursday
and will also involve a meeting with Passos Coelho.
Passos Coelho has said his government will survive the
crisis created by this week's resignations.
Portas's CDS-PP party has agreed to negotiate a solution and
said its other two ministers would not resign, at least for now.
Despite efforts to mend the division - sparked by deep and
growing misgivings in Portugal over the government's relentless
austerity drive to meet the terms of its bailout - many analysts
said it was only a matter of time before the government fell.
Lisbon's creditors - the European Union and International
Monetary Fund - are due to start their next review of the
economy on July 15, but that visit might now be delayed.
Passos Coelho has fought to keep Portugal on course to
complete its 78 billion euro ($102 billion) bailout next year as
scheduled, but austerity measures have pushed it deeper into its
worst economic crisis since the 1970s.
Gaspar, architect of the spending cuts and tax hikes
required by Portugal's lenders, quit as finance minister on
Monday, citing an erosion in support for the bailout.
Portas resigned the next day because he objected to the
appointment of Treasury Secretary Maria Luis Albuquerque to