The interest rate was 4.873 percent against 4.895 percent on November 16, while demand was double the supply, against a ratio of 2.4 times in the previous offer.

The target of the government, desperately trying to balance the public finances even as the economy shrinks badly, had been to raise 1.25 billion euros at 5.0 percent, said Carregosa bank bond strategist Filipe Silva.

But he said the result was "positive" because the Portuguese state "continues to be able to sell its debt at a lower price than that on the secondary market, which is 5.0-5.25 percent for the same maturity."

The bond issue came on the eve of a Brussels summit critical for the survival of the eurozone and after ratings agency Standard & Poor's threatened to downgrade 15 member countries, including Portugal.

Portugal had to be bailed out in May with a 78-billion-euro rescue package put together by the European Union and the International Monetary Fund in return for a stinging and unpopular series of austerity measures.

It does not currently issue longer-term debt because of the high rates it would have to pay, but is issuing short-term bonds to stay in touch with international investors.