(Reuters) - Ireland's central bank chief said on Thursday he expected Dublin to receive tens of billions of euros in loans from European partners and the IMF to shore up its shattered banks though the government said it had made no request yet.
Central Bank Governor Patrick Honohan was speaking shortly before a joint mission of the European Commission, the European Central Bank and the International Monetary Fund began talks at the central bank on a possible rescue package.
"The intention is and the expectation is, on their part and personally on my part, that negotiations or discussions will be effective and a loan will be made available and drawn down as necessary," he told state broadcaster RTE.
"We're talking about a very substantial loan for sure -- tens of billions, yes," Honohan said, acknowledging that there had been substantial outflows of funds from the Irish banking sector since April.
But Finance Minister Brian Lenihan played down expectations of an imminent bailout, saying Ireland was not yet at the point of taking a substantial international loan.
In a move to calm savers, he also said the government was extending an unlimited guarantee for depositors until the end of next year, six months longer than previously announced.
After 10 days of losses, European stock and bond markets and the euro rebounded on expectations Ireland would become the second euro zone country after Greece to receive a bailout to cope with high debts and deficits.
Dublin's borrowing costs have gone through the roof since late October as concerns about the banks' swelling liabilities and German-driven EU moves to create a system for restructuring stricken euro zone states' debts unsettled investors.
Irish bond spreads over German Bunds narrowed on Thursday and the cost of insuring Irish, Portuguese and Greek debt against default fell as markets anticipated a likely rescue package for Dublin.
Spain found solid demand for 3.6 billion euros in 10- and 30-year bonds at an auction but had to pay a higher price than two months ago, as did fellow euro zone struggler Portugal, which sold treasury bills on Wednesday.
That helped dampen fears of contagion from Ireland to other highly-indebted euro zone members.
"The auction confirms there is still a good investment base for Spanish bonds," said Jo Tomkins, an analyst at 4Cast.
The new chief executive of Italy's biggest bank, Federico Ghizzoni of UniCredit, said he had "nightmares" over the euro zone debt crisis and was worried about Europe's ability to address sovereign debt issues urgently.
"I am concerned about the fact that if not politically properly addressed, it will continue to be in the market, generating volatility," Ghizzoni told reporters in Frankfurt in a rare public airing of fears shared by many senior bankers.