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Borrowing costs rise on back of China growth fear

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13:36 CEST+02:00
Spanish short-term borrowing costs rose sharply on Tuesday, reflecting market concerns over China and over US monetary policy which Spain's finance minister said posed a risk to its economic recovery.

The Spanish treasury said it raised €3.075 billion ($4.03 billion) in sovereign bills of three and nine months' maturity on Tuesday, surpassing its target of two to three billion euros.

But the rate of return demanded by investors rose compared to the last comparable sale on May 21 — a sign of weakened confidence in Spain's financial strength.

The rate nearly tripled on the three-month bill, rising to 0.869 percent from 0.331 percent.

On the nine-month bill the rate rose to 1.441 percent from 0.789 percent.

Spain, the eurozone's fourth-biggest economy, has seen its borrowing costs generally ease this year after it resisted pressure to reach out for a sovereign bailout in 2012.

"The Spanish treasury's situation is much more comfortable now than what it was just a few months ago," said Finance Minister Luis de Guindos at an economic conference on Tuesday ahead of the sale.

But analysts' warnings over China's economic growth and its banks, plus the looming withdrawal of monetary stimulus measures by the US Federal Reserve, caused European stock markets to slump on Monday.

"Times of change in direction in monetary policy are always delicate," Guindos warned.

"They introduce volatility in the capital markets, which if not duly controlled can derail the recovery that we are undergoing."

Spain's soaring borrowing costs last year raised fears for the overall stability of the eurozone.

"Europe is no longer a problem for financial stability. It is no longer in the eye of the storm," Guindos said on Tuesday, however.

He said that Spain's economic output and employment figures would improve in the current quarter.

"The question now is not whether the Spanish economy is going to recover. The fundamental question is how strong the recovery is going to be."

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