European officials denied "absolutely false" reports Portugal was under pressure to seek a bailout and Spain ruled out on Friday needing help to manage its finances, despite fears of a spreading euro debt crisis.

The Financial Times Deutschland quoted unidentified sources as saying some euro zone states wanted Lisbon to seek aid in order to avoid Spain, the fifth largest EU economy, from having to follow suit.

"If Portugal were to use the fund, it would be good for Spain, because the country is heavily exposed to Portugal," the paper quoted a source in Germany's finance ministry as saying.

EU Commission President Jose Manuel Barroso dismissed the FT report as "absolutely false, completely false," saying an aid plan for Portugal had neither been requested nor suggested.

It also prompted a vehement denial from Portugal, whose struggles to meet fiscal targets for this year have increased investors' doubts about the credibility of its consolidation strategy.

Portugal's parliament approved a 2011 austerity budget on Friday designed to address those concerns and trim its budget deficit to 4.6 percent of gross domestic product, from a projected 7.3 percent this year.

A German government spokesman said Berlin was not pressuring anyone to request financial help and said it expected Portugal's austerity measures to work.

A Spanish government source also denied Madrid was pushing Lisbon to seek help in the wake of Ireland's call for aid, which is meant to draw a line under its debt crisis and prevent it destabilizing the rest of the euro zone.

Dublin will likely agree terms on a 85 billion euro aid deal by the start of next week German Finance Minister Wolfgang Schaeuble said. He hoped the rescue would restore calm to markets and end "exaggerated speculations.

The Irish government said it was confident it would be able to pass the toughest budget in the country's history next month to meet the terms of EU/IMF rescue deal.

However, it conceded defeat in a parliamentary by-election on Friday, further weakening Preim Minister Brian Cowen's ability to pass spending cuts and tax increases of 15 billion euros on which the bailout depends.

CONTAGION?

The rapid public denials of the FT report suggested some alarm among euro area leaders at the prospect of the debt crisis engulfing ever more of its members.

A Reuters poll this week showed 34 out of 50 analysts surveyed believe Portugal will be forced to ask for help although only four thought Madrid would seek aid.

The cost of borrowing rose again on Friday for Ireland, Portugal and Spain as markets demanded a bigger premium for holding their debt.

Spain has already passed its own austerity budget and Spanish Prime Minister Jose Luis Rodriguez Zapatero "absolutely" ruled out that Madrid would have to follow Ireland and Greece and seek financial assistance.

"Those who are taking short positions against Spain are going to be mistaken," he told RAC1 radio.

Spain hopes its austerity measures, progress on deficit reduction and restructuring its weaker banks will enable it to avoid an Irish- or Greek-style meltdown.

But it did succumb, EU funds would be stretched.

Meeting Spain's financing needs for 2-1/2 years would cost 420 billion euros ($557 billion), says Capital Economics, the bulk of the 440 billion euro European Financial Stability Facility (EFSF) the euro zone set up after the Greece bailout.

Two EU funds, augmented with International Monetary Fund backing, could provide loans worth 750 billion euros in total.

German Bundesbank chief Axel Weber, a powerful member of the European Central Bank, said this week the EFSF and other EU rescue funds had enough money to cover the borrowing needs of Greece, Ireland, Portugal and Spain.

But he added: "If that is not enough, I am convinced euro zone states will do what is necessary to protect the euro."

Worries the debt crises in Greece and Ireland could spread have pushed the borrowing costs of Portugal and Spain to record highs and hurt the euro..

The prices of Irish and European bank bonds also fell on reports that the IMF and European Union have been examining proposals for making senior bondholders share the cost of rescuing Ireland's banks.

"I think Portugal has already crossed the point of no return ... The market is now watching whether Spain will need a rescue," said a Japanese bank foreign exchange trader.

NO EURO ZONE BREAKUP RISK

On Thursday, top EU officials said there was no risk of the euro zone breaking up and German Chancellor Angela Merkel, who unsettled markets by saying the euro was in an "exceptionally serious" situation, said she was confident the euro area would emerge stronger from the crisis.

Merkel agreed with French President Nicolas Sarkozy late on Thursday that the mechanism set up to protect the euro should not be changed before it expires in mid-2013 -- another attempt to convince spooked investors they would not be made to share the cost of any sovereign default before then.

German proposals for so-called "haircuts" for bond holders have raised peripheral euro zone states' borrowing costs yet higher and irritated some states.

Schaeuble told Germany's lower house of parliament that a new, permanent rescue mechanism would "closely resemble the instruments we have" and would include the IMF.