Portugal's largest listed bank Millennium BCP said it was repaying €1.85bn in government loans as planned, easing concern for the sector after the rescue of a rival lender.

The confirmation of BCP's plan to make the repayment now and to pay another €750m by early 2016 lifted its shares, which had been hammered by fears that the rescue of Banco Espirito Santo would hurt other lenders.

The Portuguese government also announced that it would spend less on its bailout of BES than previously planned, due to contributions from the financial sector.

"Although it's only a confirmation, at this moment it can be seen as alleviating the worst fears about the BES situation, showing that in the short run at least it had no impact," Luis Goncalves, a trader at GoBulling brokers, said.

BCP also reiterated that after the repayment, its fully implemented common equity Tier 1 ratio would be 9% and 12.5% under phased-in criteria, both well above the 7% demanded by regulators.

BCP completed a €2.25bn capital increase last month to raise enough cash to repay the bulk of state loans held in so-called contingent convertible bonds, which carry high interest and weigh on earnings.

The bank issued €3bn of convertible bonds at the height of Portugal's debt crisis in 2012 and has so far paid back €400m.

But traders warned the market remained volatile due to a high degree of uncertainty over the fallout from the BES rescue for Portuguese lenders. 

Investors are concerned that lenders may have to foot part of the rescue bill, while some also fear that other banks may have problems.

Under the BES rescue plan, the state was to inject €4.9bn via Portugal's bank recapitalisation fund to carve out a healthy new bank. 

The fund, which is financed by all banks, is the formal owner of the new bank and must sell it soon.

However Portugal's Finance Minister Maria Luis Albuquerque said the country's bailout of BES  would now amount to €3.9bn thanks to contributions from the financial sector.