DUBLIN/BRUSSELS (Reuters) – Ireland yesterday agreed to work with a European Union-IMF mission on urgent steps to shore up its shattered banking sector, a process that could lead to a bailout despite Dublin's deep reluctance.

A team from the European Commission, the International Monetary Fund and European Central Bank will travel to Ireland today to examine what measures may be needed if Dublin decides to seek aid, euro zone finance ministers said.

Irish Prime Minister Brian Cowen emphasised that the mission would look at what assistance Ireland might require, again rejecting suggestions his government was discussing a bailout.

"What we want to concentrate on now is in a focused way, over coming days, to sit down and see in what way can assistance be provided to ensure that these issues can be dealt with properly and appropriately," he told parliament. "There has been no question of the government . . . (being) in a negotiation for a bailout," he said, dismissing the term as pejorative.

The EU's commissioner for economic affairs, Olli Rehn, said the EU-IMF team would work intensively with Ireland "to determine the best way to provide any necessary support to address market risks, especially as regards the banking sector".

"This can be considered as an intensification of the preparations for a potential programme if requested by the Irish government and deemed necessary by the euro area member states," he told reporters after the finance ministers' meeting ended.

Irish Finance Minister Brian Lenihan said euro zone peers had welcomed his four-year, 15 billion euros budget-cutting strategy which he hopes to publish next week, suggesting he sees no need for further fiscal tightening.

But he admitted the banking sector needed help.

"What may be required may not in fact be an actual transfer of money now but demonstration of how much money can be made available if further difficulties materialise," he said.

Ireland has said the bill for bailing out its banks could top 50 billion euros but investors fear the final figure could be even higher given rising residential mortgage arrears, deposit outflows and higher funding costs.

Britain, whose banks have around $150 billion of exposure to Irish debt, said it stood ready to help, although it was unclear what steps it might take to assist Ireland.

"Ireland is our closest neighbour and it's in Britain's national interest that the Irish economy is successful and we have a stable banking system," Chancellor of the Exchequer George Osborne said.

Irish citizens expressed alarm at the developments. "I was talking to a lady yesterday and genuinely she was saying 'I nearly had a heart-attack watching the news, that the country's going to be taken over'," said Andy, a public sector pensioner.

Financial markets appeared unimpressed by Dublin's decision to reject sovereign assistance, with the premium investors charge for holding Irish 10-year bonds rather than German Bunds holding at a near-record 575 basis points.

LCH.Clearnet, a clearing house for sovereign debt, doubled its margin requirement on Irish bonds to 30 percent of net positions, an indication of the increased risk of default.

Underlining the fear that Ireland's problems could spread, Portugal's borrowing costs soared at a treasury bill auction, with yields for 12-month paper jumping more than 150 basis points from a tender earlier this month.

Lenihan dismissed suggestions that Ireland should raise its ultra-low 12.5 percent corporation tax rate to help cut its debt. Higher-tax countries, including Britain, have long seen the Irish rate as a form of unfair competition.

"Of course our corporate tax rate is safe," he said.