China is ready to buy 4-5 billion euros ($5.3-$6.6 billion) of Portuguese sovereign debt to help the country ward off pressure in debt markets, the Jornal de Negocios business daily reported Wednesday.

The paper said, without citing any sources, that a deal reached between the two governments will lead to China buying Portuguese debt in auctions or in the secondary markets during the first quarter of 2011.

China's central bank declined to comment on the report, while Portuguese government officials were not immediately available for comment.

It is unclear whether China's government would be prepared to take on so much fresh exposure to Portugal in such a short space of time, given that Beijing has faced domestic political pressure to invest the country's foreign reserves more carefully.

Chinese investment funds suffered some large, high-profile losses during the global financial crisis.

The euro rose to the day's high versus the dollar on Wednesday on the back of the report, climbing around 30 pips to a session high of $1.3168 according to Reuters data.

However, the report is unsourced so although it's providing a bit of support, clients certainly aren't putting much weight on it, said one trader.

Portugal has moved into the eye of the storm in the euro zone's debt crisis, with borrowing costs spiking as investors grew concerned it would be next in line to seek an international bailout after Ireland and Greece.

Despite the report, the premium investors demand to hold Portuguese 10-year bonds rather than safer German Bunds was still seven basis points from Tuesday's settlement levels to 378 bps. Last month the spread hit a euro lifetime record of more than 481 bps but has narrowed thanks to bond buying by the European Central Bank.

Portugal has completed its debt issuance program for 2010, and according to the IGCP debt agency, its next bond redemption is due in April, when it has to repay 4.5 billion euros. In total, Lisbon has to repay 9.5 billion euros in bonds next year.

The 2011 budget puts next year's net financing needs at 10.75 billion euros. The IGCP has not yet announced the issuance program for next year.

Finance Minister Fernando Teixeira dos Santos met Chinese Finance Minister Xie Xuren and the head of the People's Bank of China during a visit to the country last week.

Portuguese officials have said the government is trying to diversify the debt investor base, with China as a priority.

Tuesday Moody's Investor Service warned it may downgrade Portugal's A1 rating by one or two notches after a review that will take up to three months, citing high borrowing costs and weak growth prospects.

In October, during a visit to Greece, Chinese Premier Wen Jiabao offered to buy Greek bonds when Athens resumed issuing.

A month later, President Hu Jintao visited Portugal and offered concrete measures to help the weak economy but stopped short of promising to buy Portuguese bonds.

Chinese Vice Premier Wang Qishan said Tuesday that Beijing supported efforts by the EU and the International Monetary Fund to calm global markets in the wake of Europe's debt crisis and said China had taken concrete actions to help some European countries.

Later in the day, the Chinese commerce minister put the onus more firmly on EU policymakers to act.

We want to see if the EU is able to control sovereign debt risks and whether consensus can be translated into real action to enable Europe to emerge from the financial crisis soon and in a good shape, Chen Deming said.

Major euro zone economy France played down the concerns over Portugal Wednesday. The government has no particular worry about Portugal, government spokesman and Budget Minister Francois Baroin said, responding to reporters' questions. (Reporting by Shrikesh Laxmidas; editing by Mike Peacock/Ruth Pitchford)

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