(Repeats March 10 story. No changes to text)
By Harry Papachristou
WASHINGTON, March 11 (Reuters) - Greek Prime Minister George Papandreou's whirlwind tour of Europe and the United States has won him political applause for austerity measures but failed to impress financial markets.
Warm words from U.S. President Barack Obama and support pledges from French President Nicolas Sarkozy have not lowered Greece's borrowing costs, which are still too high for the cash-strapped country to sustain.
The premium investors charge to hold Greek 10-year bonds rather than German benchmark issues widened to 310 basis points on Wednesday when Papandreou ended his tour. That was the biggest spread since he began it six days ago meeting Euro Group President Jean-Claude Juncker and German Chancellor Angela Merkel last Friday.
"This was basically a public relations campaign to boost the image of Greece, whereas the prime minister's real work is to get the budget in order," said Peter Morici, business professor at the University of Maryland.
Narrowing Greek bond spreads will require specific action by the European Union and a restructuring of Greece's crushing debt load, analysts said.
"Given Greece's underlying position and the lack of any organized action on the part of the EU, I am actually surprised the bond spreads are that low" said Simon Johnson, a former IMF chief economist now at the Peterson Institute for International Economics.
"Greek spreads will only narrow if some state banks or quasi-government institutions come out and buy Greek bonds to support the market," said Ali Zulfiqar, managing director at New-York based research firm SGH Macro Advisors.
The enormity of the budget shortfall facing Greece, revealed by Papandreou after winning October elections, has shaken confidence in the euro. It has spawned talk about creating a European Monetary Fund to deal with the fiscal woes of countries using the single currency.
"On a political level, we have turned around the country's negative image," Papandreou told reporters. "Now we are taking the fight to the markets, which have reservations."
Blaming financial speculators, Papandreou said his country's bond spreads are unfair, considering a harsh 4.8 billion euro ($6.51 billion) fiscal austerity package passed into law last week.
The package, which includes sales tax hikes and civil servant wage cuts, aims to dispel doubts the Mediterranean nation will meet an ambitious target to narrow its budget gap to 8.7 percent of GDP this year, down from 12.7 percent in 2009.
But high borrowing costs threaten to derail the deficit plan and add to Papandreou's domestic political woes. Labor unions, which fiercely opposed the austerity measures, called a 24-hour general strike for Thursday.
Greece last week paid a hefty 6.25 percent coupon to borrow 5 billion euros for 10 years to prove it could still tap international markets without implicit guarantees of financial support.
European government sources say Germany and France are working on contingency plans under which state-owned financial institutions would directly purchase billions of euros in Greek bonds or offer guarantees to commercial banks that bought them.
Papandreou said on Wednesday the EU was ready to intervene to lower Greece's borrowing costs if they fail to drop in the free market. "The way to stop speculators is to make them feel that they will lose their money," Papandreou said. ($1=.7369 Euro) (Reporting by Harry Papachristou; Editing by Andrew Hay)