HispanicBusiness

Spanish borrowing costs came under renewed pressure Thursday ahead of a key vote in the German parliament on bailing out Spain's troubled banking sector.

The vote in the Bundestag, the lower house of the German parliament, comes against the backdrop of disquiet among many voters in Europe's biggest economy about the nation's funds being used to mount rescue operations for the crisis-hit eurozone.

Meanwhile in Brussels, the European Commission denied that eurozone loans could be used for buying Spanish government bonds - a step that would reduce the country's high borrowing costs - as well as for rescuing Spanish lenders.

Simon O'Connor, spokesman of EU Economy Commissioner Olli Rehn, said there had been "a misunderstanding" after drafts of the Spanish bank rescue deal were leaked in Berlin ahead of the Bundestag vote.

The sum of up to 100 billion euros (123 billion dollars) that euro members have made available is "to recapitalize the Spanish banking system ... not for other objectives. I don't think I can be any clearer than that," O'Connor said.

A reference in the draft to the possibility of tapping into eurozone funds for government bond purchases is there "purely for informational purposes," O'Connor said, adding that Spain must file a separate request if it wants to access that facility.

A sense of calm has also returned to European share markets in the run up to the Bundestag, which is expectd to see German lawmakers backing the Spanish bank bailout.

But while the blue-chip eurozone Eurostoxx 50 index edged up 0.8 per cent to 2,298 points in morning trading and the euro climbed back above the 1.23-dollar mark, borrowing costs for Spain rose again.

Although Madrid raised 2.98-billion-euro in bond auctions Thursday, it came at a higher cost.

Two-and five-year bonds fetched yields of 5.2 and 6.5 per cent, up from 4.3 per cent and 6.07 per cent in the previous auction in June. Seven-year bonds had a yield of 6.7 per cent.

At the same time, the yield on 10-year bonds breached the critical 7-per-cent level after Thursday's bond sale.