Portugal raised €1 billion in an auction of short-term debt today amid signs the country's deep recession has bottomed out.

But investors remain wary of the political and economic risks of planned new austerity measures.

The government debt agency said it sold €700m in 12-month Treasury bills at a cost of 1.619%, which was down from 1.72% at an equivalent auction last month.

It also raised €300m in three-month bills at 0.766%, but that was slightly higher than 0.743% paid in April.

Portugal received a €78 billion bailout in 2011 after the global financial crisis and a decade of low growth pushed it toward bankruptcy.

The rescue deepened the debt crisis affecting the euro zone, though recent indicators suggest the outlook is improving.

The Portuguese economy grew 1.1% in the second quarter from the previous three months. Before that, it had dropped for 10 consecutive quarters as spending cuts and tax increases enacted in return for the bailout took a toll on economic activity. At the same time, the jobless rate dropped to 16.4% from a record 17.7% in the first quarter.

Risks remain for Portugal's recovery, however, and the government expects GDP to contract by 2.3% this year before growing 0.6% in 2014. The country is still far from generating the kind of wealth needed to pay off its debts.

The debt agency says it has already covered part of the €14 billion it has to repay in 2014, but in the following two years around €32 billion of repayments fall due. The government almost collapsed last month as the two parties fell out over the scale of new austerity measures.

Further political and social unrest is expected in coming months as the government prepares to cut another €4.7 billion in expenditure.