BRUSSELS (AP) European officials searched urgently yesterday for ways to contain the region’s debt crisis, amid expectation that a rebound in government bond markets would prove only temporary.

The EU’s monetary affairs chief, Olli Rehn, lobbied for further action from the European Central Bank such as government bond purchases to help calm financial markets, a day ahead of a key meeting of the bank’s governing council.

Meanwhile, EU regulators loosened rules on bank bailouts for at least another year, while Spain announced additional cutbacks, trying to dispel concerns its economy regarded as potentially too big to bail out might falter.

There was a slight recovery on financial markets, with the euro rising above $1.30 and the yields on bonds from vulnerable countries like Portugal, Ireland, and Greece falling slightly. Just as significantly, pressure came off the debt of Spain and Italy, two countries that have stronger finances but which only yesterday appeared to be facing increased scepticism from lenders like that which pushed Greece and Ireland into needing bailout loans.

Still, bond yields and spreads signs of financial fear remained near record highs, signalling concern that the so-called PIIGS (Portugal, Italy, Ireland, Greece, Spain) might eventually default on their massive debts, piling losses onto the balance sheets of banks and investment funds, or need a bailout that would strain the eurozone’s resources.

Although investor demand was unexpectedly strong a Portuguese sale of €500 million ($650 million) in treasury bills, Lisbon had to pay an interest rate of 5.3 percent up from 4.8 percent two weeks ago.

The official line from EU executives and politicians is that there is no risk Portugal could default within the next year, since a €750 billion ($1 trillion) EU backstop stands ready to bail it out.

But in recent weeks, an increasing number of bank analysts and economists have warned that a debt restructuring reducing the debt load by pushing losses on creditors appears almost inevitable for some countries. Crucially, the austerity measures meant to cut deficits risk backfiring by slowing state revenues and economic growth.

“As it stands ... a number of member-states are effectively insolvent and caught in a vicious circle,” Simon Tilford, chief economist at the Centre for European Reform in London wrote in a note yesterday. “The collapse of economic growth has devastated tax revenues, while deflation threatens to push up the real value of their debts.”

Standard & Poor’s Ratings Services said it was considering a downgrade of Portugal’s sovereign credit rating due to concerns that the government’s austerity measures will choke off economic growth.

By the end of 2012, Greece’s debt will stand at 156 percent of gross domestic product, Italy’s at 120 percent and Ireland’s at 114 percent, according to EU estimates released this week. That means that even if those countries nationalised the economic output of an entire year to pay off their debts it wouldn’t be enough to pay off all the debt at once.