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Portuguese Markets In Turmoil On Gov't Confusion

By BARRY HATTON

LISBON, Portugal (AP) â¿¿ Portugal pitched European financial markets into turmoil Wednesday as the coalition government came close to collapse in a dispute over austerity measures before stepping back from the brink, reminding investors that the eurozone's debt crisis is not over.

The two governing parties found common ground late in the day when the junior coalition party, the Popular Party, agreed to hold urgent talks with the senior Social Democratic Party to resolve their differences and save the government.

But the spat reignited concerns over whether Europe can find an end to its prolonged financial crisis before more damage is done â¿¿ a worry that has haunted investors. And the imminent threat of the Portuguese government's disintegration underscored the political perils of austerity, which is increasingly contested as a long-term solution because it chokes growth.

Popular Party official Luis Queiro announced in an evening statement after a day of tension that his party's two members of Cabinet will stay in their jobs "so as not to make it harder for us to overcome this crisis."

Popular Party leader Paulo Portas, whose resignation as foreign minister Tuesday threw the coalition into disarray, will meet personally with Prime Minister Pedro Passos Coelho to seek "a viable solution for the government of Portugal," Queiro said.

However, he warned his party will carefully examine future spending cuts.

The market turmoil was a reminder of the delicate path bailed-out countries like Portugal must tread to get their finances back on an even keel and the dangers they face.

The country's main PSI 20 stock index fell 5.3 percent to close at 5,236 before the junior party's announcement. Bank shares fell up to 13 percent. Stock indexes across the rest of Europe also dropped on what was happening in Portugal, with Germany's DAX down 1 percent and Spain's IBEX off 1.6 percent.

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