Portuguese rates spike

Portugal became the latest focus of Europe's debt crisis Monday as its borrowing rates briefly hit new highs, even as Europe's leading central banker, Jean-Claude Trichet, offered assurances the global recovery is picking up.

The jump in interest rates came amid reports Germany and France are pushing Portugal to tap a European rescue fund to keep the crisis from spreading to Spain.

The yield on Portuguese 10-year bonds touched 7.18 per cent Monday, before falling back to 6.94 per cent on speculation that the European Central Bank was intervening by buying bonds.

Yields drop as bond prices rise.

"I wouldn't be surprised if the ECB is trying to stabilize markets, but it's a Band-Aid approach," said Neil Mackinnon, global macro strategist at VTB Capital.

"All it does is that it kicks the can down the road. It doesn't resolve the underlying issues."

Trichet optimistic

At the same time, Trichet, the chief of the ECB, said central bankers from leading nations agree the global economy is recovering faster than expected.

Trichet spoke following a meeting of the top bank governors in Basel, Switzerland.

Although they see dangers from rising food prices and other inflation in fast-growing markets, he said, the recovery is particularly strong in emerging economies such as China, Brazil and India.

"At the level of the global economy the recovery is confirmed," Trichet said. "Growth is there, particularly, I have to say, impressive in the emerging economies.

"In a number of a cases, the real economy has demonstrated the capacity to behave better than the previous forecast."

ECB buys $96B US in bonds

Since the bailout of Greece in May, the ECB has bought $96 billion US in the government bonds of distressed countries.

The spike in yields followed a report in German newspaper Der Spiegel that France and Germany are both pressing Portugal to accept a rescue.

"Germany is not pressuring anyone, and has not pressured anyone in the past," German government spokesman Christoph Steegmans said. The French government declined to comment.

The prevailing view in the markets is that Europe may be able to support Portugal but that a bailout of Spain would test the limits of the existing bailout fund, potentially putting the euro project itself in jeopardy if governments don't put up more cash.

Spain accounts for about 10 per cent of the euro zone economy, compared with Greece, Ireland and Portugal, which account for only about two percent each.