Portuguese prime minister Jose Socrates has resigned after parliament rejected the government's deficit-cutting stability and growth programme.

Speaking in Lisbon, Mr Socrates said the political crisis is occurring in the "worst possible moment" for the country.

Earlier this evening, lawmakers rejected the prime minister's proposals to cut the deficit, triggering his resignation and increasing the chance of an international bailout.

Following parliament's vote against proposed spending reductions and tax increases, Mr Socrates was set to meet president Anibal Cavaco Silva at the presidential palace in Lisbon and then address the nation, heightening speculation he'll call early elections.

Mr Socrates had said he would resign if the plan was defeated.

Lawmakers backed resolutions against the government's stability and growth program, Jaime Gama, the parliament's president, said in Lisbon today. Mr Socrates is scheduled to meet with Portuguese President Anibal Cavaco Silva tonight and will make a statement to the country, parliamentary affairs minister Jorge Lacao said after the vote.

Mr Socrates had said last week that his minority government was available to discuss deficit-cutting measures with opposition parties to avert a "political crisis".

Portugal is raising taxes and implementing the deepest spending cuts in more than three decades to convince investors it can narrow its budget gap, curb debt and avoid seeking a rescue from the EU.

The spread between Portuguese and German 10-year bond yields widened 16 basis points to 439 basis points today after reaching a euro-era record of 484 on November 11th.

In November, Ireland became the second euro country after Greece to seek a bailout and the first to request aid from the European Financial Stability Facility.

Bloomberg