Spain Market Pressure Eases Despite Portugal Woes

Spain's Finance Minister Elena Salgado said the nation would not end up joining its neighbor Portugal in requesting a bailout - and investors appeared to agree, as market pressure eased on the debt-heavy country.

Investors accepted lower interest rates in an auction of three-year bonds that was seen as a first test after Portugal said Wednesday it would seek an international rescue package.

The Spanish Treasury said it sold euro4.13 billion ($5.9 billion) at an average interest rate of 3.57 percent, down slightly from 3.59 percent in the last such auction Mar. 3.

Salgado told the Cadena Ser radio station that outside help for the eurozone's fourth largest economy "is absolutely ruled out" because the Spanish economy "is more diversified, more powerful with sound basics, and is much more competitive" than Portugal's.

Portugal's bailout request also appeared to have little impact on Spain's other borrowing rates in the secondary market. In midmorning trading, the yield on Spain's 10-year bonds was at 5.25 percent, up marginally from 5.21 percent on Wednesday. The spread, or difference, with Germany's equivalent rate actually eased somewhat, indicating investors are less worried about the country's finances.

"The coming weeks and months will be key in determining whether the market views Spain to be in the clear," said Jane Foley, an analyst at Rabobank International.

Few economists think Spain is in line to become the fourth member of the eurozone's bailout club anytime soon following a raft of austerity measures which have included tax increases, public sector wage cuts and the raising of the retirement age from 65 to 67.

Dan Seiver, a finance professor at San Diego State University, said there is now a much lower risk that speculators will target other nations in the eurozone, because the weakest countries have received - or are about to receive - bailouts.

Nevertheless, Spain faces extremely difficult times in the years ahead. Unemployment stands at 20 percent with grim growth prospects. Thousands of young Spaniards were expected to demonstrate Thursday night against the austerity measures.

Spain's central bank says the economy will grow this year by just 0.8 percent after two years of recession, though the government of Prime Minister Jose Luis Rodriguez Zapatero has rosier forecasts for 1.3 percent growth.

The government on Wednesday lowered growth estimates for 2012 from 2.5 percent to 2.3 percent, and from 2.7 percent to 2.4 percent for 2013.