Anglo Irish Bank said on Tuesday the bill for its rescue should not exceed 25 billion euros (20.6 billion pounds) but investors remained sceptical after mounting losses raised pressure on Ireland to shut down the nationalised lender.

Once the posterchild of the Celtic Tiger economy, the cost of bailing out Anglo left Ireland with the biggest budget deficit in the European Union last year, undermining the government's austerity drive and raising its borrowing costs.

Anglo Irish Chief Executive Mike Aynsley's view that the bank would not need more than the 25 billion euros previously flagged by the government failed to soothe markets already rattled by concerns over euro zone debt.

It's a pretty brave comment by the management, said one analyst who declined to be named. As a taxpayer I would be somewhat relieved, and I think it would be a nice support for the bond market, but I'm scratching my head over it.

The premium investors demand to hold 10-year Irish bonds over German Bunds was hovering close to euro-era highs of 366 basis points on Tuesday. Irish financial stocks <.IFIN> were trading down 1.45 percent.

In an analysis criticised by Irish officials, ratings agency Standard & Poor's estimated last week that the final cost of purging Anglo of bad debts accumulated during the property boom could hit 35 billion euros.

Finance Minister Brian Lenihan did not put a final figure on Anglo's bailout but said clarity on the total cost would come when Ireland reaches an agreement with the European Commission on what to do with the lender.

We must bring finality and certainty to that figure and that is part of this exercise we are doing with the European Commission, he told the national broadcaster. We have to bring closure to this matter in a matter of weeks.

WIND DOWN POSSIBLE

Dublin signalled on Monday that it might wind down Anglo Irish, the worst-performing company in Irish corporate history, after its losses and scandals made it more difficult for the government to push through spending cuts.

Anglo reported a first half loss of 8.2 billion euros after taking an impairment charge of 4.8 billion euros and booking a loss of 3.5 billion euros for transferring loans to NAMA, Ireland's state-run bad bank.

Anglo's management would like to see the lender split into a good bank/bad bank following the transfer of around 36 billion euros worth of loans to NAMA.

But recent media reports have suggested Brussels, whose opinion is crucial, would rather close down Anglo than keep a substantial chunk open in a good bank/bad bank split.

Aynsley declined to comment on the EC's views.

IRISH LIFE PLEASES

The escalating cost of dealing with Anglo Irish has raised the stakes for the country's other banks as they prepare to refinance a wall of debt next month and wean themselves off a government guarantee of their liabilities.

Irish Life, the country's largest life insurer and fund manager, said on Tuesday it expected debt markets would start to thaw towards Irish banks once the sector refinances around 25 billion euros worth of redemptions next month.

Shares in the bancassurer were the one bright spot among Irish financials on Tuesday after it shrank first-half losses.

Anglo has to transfer a further 20 billion euros to NAMA and Aynsley said he expected it to be sold at a discount of 60-65 percent, matching a near-62 percent discount on the last tranche of loans sold.

(Additional reporting by Andras Gergely and Padraic Halpin in Dublin, Editing by Lin Noueihed)