Debt markets gave stressed governments on the euro zone's southern rim a break Wednesday in a lull in the crisis over debt-stricken Greece.
Spain drew a stampede of demand for a government bond issue and Portugal's borrowing cost fell in signs that market fears of sovereign risk in the euro zone may be easing, at least for now.
Analysts said a successful Spanish sale could open the door for Greece to launch a planned 10-year bond after European Union leaders pledged support last week for Athens' plans to shrink its huge budget deficit but stopped short of financial aid.
"Good news in the euro zone periphery is also good news for Greece," said Leonidas Fragiadakis, group treasurer at National Bank of Greece, the country's biggest bank.
Spain booked €12-billion of orders for a €5-billion syndicated 15-year bond, according to IFR, a Thomson Reuters service. The pricing was at the low end of the initial guidance.
Debt-ridden Portugal, seen by markets as the next domino to fall if Greece were to have payments problems, sold €1-billion of 12-month treasury bills at a lower average yield of 1.173 per cent in a well bid auction.
The premium investors charge for buying Greek bonds rather than benchmark German bunds narrowed to around 315 basis points from 321 late on Tuesday.
However, UBS strategist Justin Knight cautioned that markets would continue to charge a higher premium on Greek borrowing until they had some clearer indication of what financial support the EU was prepared to offer.
"Some kind of more concrete commitment by EU leaders on possible aid to Greece is what would provide a much more benign environment for Greek bond issuance," Mr. Knight said.
Greece's public debt is forecast to reach 120 per cent of gross domestic product this year, more than twice the level of Spain's, although Madrid is also battling a high budget deficit due to recession aggravated by the collapse of a property boom.
Greece's Socialist government gained a temporary respite on the social front when tax officials called off the latest of a series of one-day strikes against austerity.
On Tuesday, farmers ended a 30-day protest despite failing to win any extra state handouts, abandoning their last road blockade near the Bulgarian border.
"There is no doubt this is a victory for the government," said Costas Panagopoulos, head of ALCO polling agency. "This could mean that it can now adopt a tougher stance towards other unions, but also shows it is determined to implement its plan."
In another boost, Greek budget revenues in January exceeded the country's target, helped by a one-off tax on big corporations, preliminary finance ministry data showed.
The cabinet was to hear a report on Tuesday's meeting of EU finance ministers, which told Greece to take additional measures to achieve its target of cutting the budget deficit from 12.7 per cent of gross domestic product in 2009 to 8.7 per cent this year, and below 3 per cent in 2012.
Prime Minister George Papandreou is juggling market forces and domestic constraints as he seeks to enforce a public sector pay freeze, welfare cuts, tax rises, pensions reform and public spending curbs in a recession without sparking social unrest.
A 24-hour general strike by the two main trade unions next Wednesday will be a key test of strength. Analysts expect the government to delay any additional austerity measures until after then. Opinion polls show a majority of Greeks accept the need for austerity provided it is socially fair.
Greece needs to sell some €53-billion in debt this year, including at least €20-billion in April and May, and is looking for EU support to reduce its borrowing costs.
EU finance ministers have discussed options such as conditional bilateral loans or guarantees for Greek borrowing but come to no conclusion, and are holding off on any move to maintain pressure on Greece to deliver on deficit reduction.
However, opinion polls and political comment in fiscally conservative northern euro zone countries suggest a hardening of opposition to any bailout.
A staggering 92 per cent of Dutch people want Greece to leave the European single currency, according to an opinion poll in the Dutch daily De Telegraaf on Wednesday.
Public opinion in Germany, the euro zone's biggest economy, is also firmly against a bailout.
Greek Finance Minister George Papaconstantinou meanwhile told parliament on Wednesday that a swap operation conducted by Goldman Sachs in 2001 that helped Greece mask the level of its budget deficit to qualify for the euro was entirely legal and compliant with EU rules at the time.