Spanish has to pay more for short-term funds

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Spain's borrowing costs rose at an auction of 12- and 18-month bills on Tuesday as investors sought a bigger return for their money amid lingering concerns over eurozone debt levels.

Spain's treasury said it raised 5.28 billion euros (6.9 billion dollars) in 12-month bonds at an average yield -- or return -- of 1.908 percent, up from 1.836 percent at the previous auction on August 17.

It sold another 1.76 billion euros in 18-month bonds at 2.146 percent, up from 2.078 percent in the last auction.

The total amount of 7.04 billion euros raised was slightly more than planned but it was also the first time that yields on Spanish bond issues have risen since June.

Spain has been struggling this year to assure markets it will avoid the fate of Greece and is in control of slashing its public deficit which reached 11.2 percent of gross domestic product (GDP) in 2009.

Socialist Prime Minister Jose Luis Rodriguez Zapatero's government earlier this year implemented the sharpest spending cuts since Spain returned to democracy following the death of dictator Francisco Franco in 1975.

The cuts aim to bring the public deficit down to 6.0 percent of GDP in 2011 and to the eurozone limit of three percent by 2013, with measures including cuts to civil servants' wages, a sales tax increase and a freeze on pensions.

Spain comfortably sold four billion euros of long-term debt last Thursday, at sharply lower rates than in the past, suggesting at the time that there was growing investor faith in the country's deficit cutting programme.

It sold 1.28 billion euros in 31-year bonds at an average yield of 5.077 percent, down from 5.908 percent at the last such sale on June 17.

It also raised 2.72 billion euros of 10-year bonds at an average yield of 4.144 percent, down from 4.83 percent at a previous auction on July 6.

Tuesday's auction, however, coincided with similar sales in Ireland and Greece, both heavily indebted and seen at risk as fears over the eurozone's public finances increased in the past few days.

-- Dow Jones Newswires contributed to this report --

© 2010 AFP

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