* Two largest unions to lead anti-austerity strike on Thursday
* Strike adds to concerns over yields as Fed’s QE to evaporate
* Bond yields highest since December, near unsustainable 7 pct
By Andrei Khalip
LISBON, June 26 (Reuters) - Portugal’s fourth general strike in two years on Thursday will highlight the dilemma faced by the government, which imposed dramatic austerity measures to return to financial markets after a 2011 bailout only to see its bond yields soar this month.
While unlikely to be economically-crippling or violent, the planned strike and protests should send a loud reminder to the administration that the population blames an economic slump and record unemployment on its spending cuts and tax hikes.
Its argument that the sacrifices have made it possible for the country to resume financing via bonds and start paving the way out of the European Union and International Monetary Fund’s bailout programme by mid-2014 as planned, is wearing thin.
Bond yields have spiked across the periphery of Europe’s single currency zone since the U.S. Federal Reserve said it would wind down injections of cheap money that investors used to buy risky bonds. Portugal’s yields have risen more than most.
“If we think about it, our future is a dark, living-under-the-bridge kind of future... But we don’t stop believing, fighting and demanding,” said Catarina Vieira, 24, who plans to take part in rallies and picket lines on Thursday.
Analysts expect the one-day stoppage to close many public services, halt trains and the Lisbon metro and halve bus services in the capital, but involve little participation by the private sector or major utilities.
State-owned airline TAP has warned of possible disruption but not cancelled any flights.
Striking means losing a day’s pay and that is something many workers’ families now simply cannot afford in the third year of Portugal’s worst recession since the 1970s, and the unions’ demands for urgent moves to boost growth may fall on deaf ears.
“We’ll call for a new government, because this one is the death blow to the youth and to the country,” Vieira, who has been unemployed for over a year, one of the record 42 percent of Portuguese youth who are now jobless.
It will be the second time the two largest labour unions, with over 1 million members between then, have held a joint general strike against the government, which came to power right after Lisbon resorted to an international bailout in mid-2011.
Despite record low approval ratings, the centre-right coalition has a comfortable majority in parliament and is practically immune to the opposition’s calls to unseat it.
Portugal’s 10-year bond yield has soared from three-year lows of around 5 percent, reached in May when the country sold its first syndicated benchmark bond since the bailout, to almost 7 percent now - its highest since December. Still, the yield is well below last year’s record of over 17 percent.
“Thank God Portugal got its 10-year bond sold, it wouldn’t stand a chance in hell to do that now,” said Nicholas Spiro, Managing Director at Spiro Sovereign Strategy in London.
On Tuesday, Finance Minister Vitor Gaspar downplayed the rise in the yield, telling parliament he expected to resume regular bond auctions this year.
Also undermining Portugal’s prospects of regaining full access to market financing are investor doubts whether the European Central Bank will ever use its yet untested bond-buying programme. The ECB’s pledge last July to do whatever it takes to preserve the euro made yields plummet and stay low until May.
The strike has added to investor concerns, especially after violent protests in Turkey and Brazil, although analysts do not expect such spontaneous unrest in Portugal.
“Austerity fatigue and the ongoing recession leave Portugal vulnerable. Riots in other countries have left the market a bit overly concerned,” said David Schnautz, interest rate strategy director at Commerzbank in New York. “But then it could be a positive for Portugal if it ends without violence.”
There was still a good chance yields would fall to make bond auctions or swaps possible by September, he said.
Viriato Soromenho Marques, a political scientist with the University of Lisbon, said the strike would not unseat the government but any more austerity measures beyond those planned until 2015 could trigger “a stronger reaction in the streets”.
The government is sticking with its plan to 2015, but has hinted it will rather seek an easing of bailout targets than impose more austerity beyond that.
Celia Rocha, 32 and an accountant in a small printing company, said she will work on Thursday.
“My heart goes out to those who strike to defend their jobs, but these stoppages affect me and my job. If my company shuts down, what am I supposed to do?” she said as she waited in the scorching sun outside a ferry terminal in Lisbon, shut by a partial strike preceding Thursday’s labour action.
“We are in a very sad situation, there appears to be no way out, strikes or no strikes.”