UPDATE 4-Pressure mounts on Portugal's Socrates over crisis

* Concern at ability to avoid bailout, ratings warning

* Portuguese central bank speaks of intolerable risk

* Unions back away from confrontation

(Recast with Socrates statement)

By Sergio Goncalves and Andrei Khalip

LISBON, Nov 30 (Reuters) - Prime Minister Jose Socrates denied on Tuesday Portugal faced pressure to seek an international bailout, while the Standard & Poor’s rating agency said it might cut the country’s credit rating.

The minority Socialist government is striving to demonstrate that Portugal can avoid becoming the latest euro zone domino to fall, after Greece and Ireland. Last week, Socrates pushed through a harsh budget which will raise taxes and cut public sector wages.

“First of all there are no pressures (to seek a bailout). This is not true,” he told reporters after meeting the country’s main exporters to whom he promised the government would act to help the sector and secure economic growth.

“We don’t need any help. We will do all we can ourselves,” Socrates said, adding that a rise in borrowing costs was affecting several European countries and he saw no reason to change his government’s position.

He would not comment on Standard & Poor’s warning that it might cut the country’s A-minus credit rating after a three-month review [ID:nN30292510]. Explaining its warning, S&P cited uncertainties over the country’s growth prospects and possible need for foreign financial aid.

Earlier on Tuesday, the central bank said Portuguese banks faced an “intolerable risk” unless the government brought public spending under control.

So far this year the government has been unable to cut spending as planned.

Ireland received an 85 billion euro ($113 billion) bailout package from the European Union and the International Monetary Fund last weekend. Economists fear that, unless Portugal takes the same medicine, the contagion will spread to its neighbour Spain, a considerably larger economy.

Portugal’s risk premium, measured by the spread on its 10-year government bonds over safer German Bunds, was down six points from Monday at 450 basis points, but negative news on ratings is likely to push the premium higher again.

On Wednesday, all eyes will focus on a treasury bill auction. Portugal will issue 500 million euros’ worth of 12-month bills and if the borrowing costs are high, it would be a further blow.

“The market is pushing rates higher to a level where countries are being obliged to ask for help,” Filipe Garcia, an economist at Informacao de Mercados Financeiros consultants, told Reuters.

“This is not really in our hands any more,” he said, adding the timing of any bailout was difficult to forecast.

Banking shares led Portuguese stocks lower, with Banco Espirito Santo BES.SL slumping 2.8 percent and Millennium BCP BCP.LS down 1.5 percent at the close on Tuesday.


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In a glimmer of good news for Socrates, Portuguese unions on Tuesday backed away from confrontation with the government over its austerity plans and said they wanted to discuss their concerns rather than take to the streets. A general strike last week paralysed public transport and shut down many services.

Pedro Roque, deputy general secretary of the 500,000-strong Workers’ General Union (UGT), said it would take a path of negotiation rather than confrontation over austerity measures, indicating Portugal might avoid the unrest seen in Greece.

“We’ve shown that we are unanimously against such measures, but now we want to be part of the negotiations and discussions so that any new potential package of measures is not harmful, so that it does not kill the patient with the cure,” he told Reuters.

The government expects the economy to grow at least 1.3 percent this year, mainly thanks to growing exports, after last year’s 2.6 percent contraction. Next year it predicts an expansion of just 0.2 percent and many economists say the economy will slide back into a recession. (Additional reporting by Axel Bugge and Daniel Alvarenga; writing by Angus MacSwan; editing by Andrew Dobbie)