ATHENS, Greece – HEAVILY indebted Greece intends to keep tapping bond markets for much-needed cash and resist using a European financial lifeline, top officials said after successfully raising euro1.56 billion in a treasury bill auction yesterday.

Although investors flocked to buy the bills yesterday, the interest rate was punishingly high compared to Greece’s previous short-term debt auction, underlining the difficulty Greece faces in trying to dig out from under its debt pile.

“Our aim remains — and I believe we will continue to do it — to continue to freely borrow from the markets, as we did today with the issue of six- and 12-month treasury bills,” Finance Minister George Papaconstantinou said.

“I stress that the Greek government has not requested the activation of this mechanism, despite that fact that it is immediately available, if required,” he added.

Greece is struggling to raise money to repay debts that come due in May. It is hoping the rescue package announced Sunday by its partners in the eurozone and International Monetary Fund — which it could tap as a last resort — will restore market confidence and eventually drive rates down.

The centre-left government has said it cannot go on paying elevated market interest rates as it seeks to roll over its debt obligations and avoid default or a bailout.

Analysts said Athens might be forced in the end to use the euro40-billion (US$54.3-,billion) package, which would more than cover the rest of its borrowing needs for 2010. That safety net has reassured markets Greece won’t default this year, but weak growth prospects lead many to question its ability to pay off its enormous debt burden in coming years.

“Today’s successful Greek short-term debt auctions will further ease fears about Greece meeting its near term financing needs, but it still faces an uphill struggle to return the public finances to a sustainable position,” said Ben May,

an economist at Capital Economics Ltd in London.

Despite yesterday’s successful auction, May said Greek bond yields would likely remain high for the foreseeable future and that the euro’s recent ascent would come to a halt — by mid-afternoon London time, the euro the was trading 0.2 per cent higher at US$1.3610.

As a result, May said there’s “a strong chance” that the Greek government will eventually have to take the funds offered.

For now, Prime Minister George Papandreou argued that the existence alone of the deal was a relief.

“Whether we make use of the mechanism that has been created or not — and that is a matter for assessment — it is a safety net for our country, which will allow us to get our work done with greater peace of mind,” he said.

Jean-Claude Juncker, head of the eurozone finance ministers, described the weekend aid decision as “a loaded gun”.

“The markets now know that this was not some poem written by the finance ministers,” he told German state radio Monday.

The scale of Greece’s problems is evident in the rates the country has to pay to entice investors — the yield for Greece’s 12-month bill sold yesterday stood at 4.85 per cent compared to 2.2 per cent for the previous issue in January, while the yield for the six-month bills was 4.55 per cent compared to 1.38 per cent in a similar auction in January.

However, the 12-month issue was more than six times oversubscribed, while the six-month issue was more than seven times oversubscribed.

The Public Debt Management Agency was initially seeking euro1.2 billion, but also accepted euro180 million in noncompetitive bids for each T-bill, bringing the total raised to euro1.56 billion.

Luca Cazzulani, an analyst with UniCredit in Milan, said the additional bids were a positive signal, especially as the yields were both below five per cent — the rate which would accompany the bailout, if it arises.

“Today’s auction went quite well,” he said.

The amount sought and raised was relatively low, as Greece’s total borrowing requirements for the year are around euro54 billion (US$73 billion). The centre-left government says it has raised enough cash on international markets to cover its needs for April, but has to borrow around euro11 billion (US$14.9 billion) next month.

Despite a sharp fall in Greek borrowing costs Monday, after the EU provided details on the lifeline package, the country is still having to pay way more than its eurozone partners, to offset the perceived risk of its defaulting on its debts.

The spread between the yield investors demand on 10-year Greek government bonds and the benchmark German equivalent — a closely-watched gauge of investor sentiment — is around 3.5 per cent, unchanged from late Monday.

Last week, the spread jumped to around 4.5 per cent at one stage.

Caught with a budget deficit of nearly 13 per cent of annual output and a euro300 billion debt, the government has committed to slash spending and boost revenues in a bid to bring the deficit under 3 per cent of economic output — the EU ceiling — in 2012.

The Greek Parliament is this week expected to approve reforms meant to lower the burden on the poor and

fight rampant tax evasion, which have angered many professional groups and unions.

Greek taxi drivers will go on strike today and tomorrow to protest the draft law, while lawyers started a three-day strike Tuesday.