Spanish fears hold down FTSE and European markets

(Update) Britain’s FTSE 100 and markets across Europe fell further as the yield on 10-year Spanish bonds rose for a second day amid doubts about the stability of the country’s finances.

The benchmark UK index of blue-chip shares shed 0.57%, or 33 points, to 5,671 and the Mid-250 index increased 0.54%, or 62 points, to 11,291. See the FTSE 100's performance and the index's top risers and fallers.

Spanish 10-year bonds opened with a yield of 5.69%, rising 125 basis points to 5.82%, seeing the rate government is paying on its debt come closer to unsustainable levels. Other eurozone countries were forced to seek bailouts when their bond yields peaked above 7%.

Prime minister Mariano Rajoy (main image) yesterday said Spain faced 'extreme difficulty', while he signaled that his budget cuts are less painful than a bailout would be, according to reports.

Simon Furlong, trader at Spreadex, said today: ‘Europe painted a pretty bad picture for itself yesterday, with Spanish yields rising and economic data giving little reassurance that Europe will manage to avoid dipping back into recession.

‘The US economy is faring quite well at the moment, but will Europe drag their fragile recovery down with it? Spain needs to be closely watched as previous contagion fears could prove to be reality if this rather large domino does decide to fall.'

Kathleen Brooks of Forex.com added: 'It seems inevitable that if bond yields keep rising and bond auctions continue to disappoint there will be some sort of EU summit to try and sort out this crisis.'

Data published this morning showed that industrial production in the eurozone's largest economy, Germany, dropped by more than was forecast in February. IP was down 1.3% month on month, after a 1.2% gain in January.

Other stock markets in Europe fell: Germany’s DAX index dropped 1.26% to 6,697, France's CAC 40 index fell 0.92% to 3,283, and the FTSEurofirst 300 index of top European shares shed 0.62% to 1,044.

All eyes are now on US jobs figures to be published tomorrow when markets are closed.