A surge in borrowing costs for Spain on Wednesday unsettled financial markets and showed that even if the European debt crisis was in remission, it was not cured.
A decision by the European Central Bank on Wednesday to leave its main interest rate unchanged also reflected concerns about the broader euro zone, where the economy was sputtering and credit was still tight.
The Spanish debt auction came just days after the government of Prime Minister Mariano Rajoy announced deep budget cuts meant to reassure investors that Madrid could meet its deficit-reduction targets. Spain sold EUR 2.6 billion, or $3.4 billion of debt, near the bottom of its targeted range. Yields were higher than in recent auctions as the government sought to counter falling demand amid concerns about the effects of the budget cuts on an economy that was sinking into its second recession in three years.
Following the disappointing bond auction, Spain's long-term borrowing costs soared to their highest levels since December, with the yield on the benchmark 10-year government bonds rising 25 basis points, or 0.25 percentage points, to 5.7 percent. It had fallen as low as 4.6 percent in January, when banks in Spain and elsewhere in the euro zone started to buy more government bonds, using the proceeds of low-interest loans provided by the European Central Bank.
"There has long been a dearth of foreign buyers, so if domestic buyers are now starting to retreat, the Spanish treasury has a serious problem on its hands," said Nicholas Spiro, founder of Spiro Sovereign Strategy, a London-based consulting firm specializing in sovereign credit risk. "I think this is beginning of a new bout of nervousness centered around Spain, but also possibly Italy."
In Europe, all major indexes fell 2 percent or more on Wednesday, with the Euro Stoxx 50, a barometer of European blue-chip stocks, slipping 2.5 percent and the FTSE 100 in London losing 2.3 percent. In Frankfurt, the DAX tumbled 2.9 percent.
U.S. stocks were trading lower Wednesday afternoon, with the Dow Jones industrial average down 1.1 percent and the Standard and Poor's 500-stock average off 1.2 percent.
The decision by the E.C.B. governing council to leave its benchmark rate at 1 percent, a record low, was expected. A rate increase would have signaled the central bank's intention to tamp down inflation in the 17-nation euro zone. At an annual rate of 2.6 percent in March, inflation is well above the E.C.B.'s target of about 2 percent. But any concerns policy makers may have had about prices were apparently outweighed by recent economic data showing that the euro zone economy was stuck in recession.
Unemployment in the euro zone reached its highest level in 15 years during February, according to data published Monday. In addition, recent surveys have shown that business managers have grown more pessimistic and that credit is difficult to come by, especially in countries like Spain that have been hardest hit by the debt crisis.
Spain's problems, including the disappointing results of Wednesday's debt auction, raised the possibility that the European sovereign debt crisis could accelerate again, and contributed to a sharp decline in main European stock indexes as well as the euro.
Asked at a news conference in Frankfurt about the Spanish bond auction, Mario Draghi, the president of the E.C.B., warned countries
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