Troika heading to Lisbon to pore over spending cuts

LISBON (Reuters) - Portugal's lenders will this week scrutinize new spending cuts outlined by the austerity-minded government on Friday to meet the country's bailout targets, the finance ministry said on Monday.

The latest 2-billion euro tranche of the 78-billion euro bailout hinges on the approval of the spending cuts, which could potentially deepen the country's recession.

"A technical mission form the European Commission, European Central Bank and International Monetary Fund will be in Lisbon beginning tomorrow ... to analyze the measures," the finance ministry said in a statement.

On Friday, Prime Minister Pedro Passos Coelho announced plans to raise the retirement age by one year to 66 and make public sector employees work an extra hour per day as part of an array of new spending cuts needed to slash the budget deficit.

The measures, which will be applied mostly from next year and are aimed at saving the state 4.8 billion euros by 2015, also include voluntary redundancy programs for 30,000 of the country's 600,000 public sector workers.

Although the EU has voiced concerns that the new measures could face the same problems that led the Constitutional Court to reject some previous austerity steps, analysts generally do not expect any new objections.

The government insists it has now abided by the court's ruling.

The European Commission has also warned the new measures may require a downward revision of Portugal's growth estimates. The economy is expected to shrink 2.3 percent this year and grow 0.6 percent in 2014 after three years of the worst recession since the 1970s.

Portugal's bond yields are around their lowest levels since 2010 - before the mid-2011 bailout and the country is expected to issue a 10-year bond soon as it strives to regain full market access.

(Reporting By Andrei Khalip; Editing by Toby Chopra)