Successful bond auction takes pressure off Spain

Embattled Spain won breathing space from international markets yesterday with its biggest bond sale since January, as its Prime Minister Mariano Rajoy scrambles to avoid a full-scale bailout.

Madrid raised €4.8bn (£3.7bn) in the first auction of long-term bonds since the European Central Bank (ECB) launched its emergency lifeboat for eurozone strugglers two weeks ago.

Spain paid 5.67 per cent for the 10-year debt – down almost 1 percentage point from the 6.64 per cent it paid at a similar auction a month earlier – in a sign of easing pressure from international investors. But the nation's borrowing costs still remain worryingly high. In contrast, the UK sold £4.5bn of five-year gilts yesterday at a yield of just 0.8 per cent.

Mr Rajoy, who has already tapped bailout funds for €100bn to prop up the nation's creaking banking system, has been stalling over a wider rescue which many experts regard as inevitable. Mario Draghi, the ECB president, has said he will only start buying up short-term debt if the country requests a bailout and signs up to strict conditions.

Havinder Sian, an analyst at Royal Bank of Scotland, said: "The result is decent, but it doesn't follow that the market will react positively as it pushes back the timetable. A bad auction will push Rajoy to seek a bailout – a good one means he might vacillate again."

The financial information group Markit's latest snapshot of the eurozone's services and manufacturing sector – where a score below 50 indicates contraction – slipped from 46.3 to 45.9, when experts had hoped for an improvement.

The eurozone avoided a double-dip recession by the skin of its teeth in the first quarter, but a fresh slump now looks inevitable after Markit said the latest survey was consistent with a contraction of 0.6 per cent between July and September.

Angela Merkel has turned to her estranged former mentor Helmut Kohl to win over German voters angered by EU plans to bolster stricken euro states.