Portuguese Prime Minister Jose Socrates has resigned after parliament rejected his latest round of austerity measures.
The vote set the stage for the resignation of Mr Socrates on the eve of a key EU summit on the euro zone debt crisis.
All five opposition parties voted against the Socialist government's fourth cost-cutting plan in a year, aimed at avoiding a multi-billion euro financial bail-out like the ones granted to Greece and Ireland last year.
Finance Minister Fernando Teixeira dos Santos earlier opened the debate, warning that a refusal to approve the measures 'will provoke an immediate rise in the country's risk and immediate consequences in terms of credit ratings'.
All opposition parties had proposed resolutions calling for the rejection of the measures, which reduce pensions and state spending.
The government had hoped to obtain support for its plan before Thursday's EU summit, to reduce market pressure on Portugal's sovereign debt. This evening, the Portuguese benchmark 10-year bond yield rose to 7.83% from Tuesday's 7.68%.
Many economists see borrowing costs above 7% as unsustainable and say Portugal will have to resort to the rescue mechanism. Ireland's 10-year bond yield also moved to a new high of 10.24% this evening.
