FTSE rises cautiously after Spain debt auction

(EPA)

The index of London's leading shares responded cautiously today after unexpectedly high demand for the closely-watched sale of Spanish debt.

There was relief at strong demand, despite the fact some of the borrowing costs to Spain rose.

In a demonstration that investors still have confidence the Spanish government issued 2.5 billion euros of two and 10-year bonds at the top end of its targeted demand.

Spain managed to sell off more debt than it had targeted, although it had to pay a higher premium, in an auction that was a test of confidence in Madrid's ability to get a handle on its borrowings as its economy enters a recession.

The 10-year bond yield, however, rose to 5.7% from 5.3% at the last auction.

This reflects concerns investors have over the ability Spain has to push through austerity measures.

This week Spain’s 10-year debt pushed above 6% triggering yet more concern that the country may need an international bailout.

The mixed result at the auction was reflected in London's banking stocks, with Barclays, Lloyds and Royal Bank of Scotland all remaining flat at 214.3p, 30.1p and 24.5p respectively.

Traders focused on the strong demand at the auction, suggesting that Spain may be able to continue to fund itself through financial markets.