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Business

Spain completes bonds sale, easing debt crisis tensions

Spain has managed to raise 3 billion euros from a sale of government bonds, injecting a dose of much-needed good news into markets as the ECB warns of short-term inflationary pressure.

Spanish Prime Minister Jose Luis Rodriguez Zapatero

The Zapatero government has made huge spending cuts

Spain succeeded in selling 3 billion euros ($3.94 billion) worth of government bonds on Thursday in an attempt to raise funds to aid its battered economy.

The Socialist government in Madrid said it hoped the bond auction would boost investor confidence in the Spanish economy - Europe's fourth largest - and show that it could access market financing at affordable rates.

Spain's Treasury said after the sale that the five-year bonds were purchased with a higher yield, or interest rate, attached than at the previous auction in November. The yield stood at 4.59 percent, up nearly a percentage point from last year.

However, the ease at which the bonds were sold reflected a degree of market optimism that governments in the 17-member eurozone would take fresh action to ease the region's debt crisis. Madrid's first bond auction of the new year was more than two times oversubscribed.

Highest unemployment in the EU

Among Spain's key economic problems are a 2009 budget deficit of 11.1 percent and an unemployment rate of around 20 percent, the highest in the European Union. The government of Prime Minister Jose Luis Rodriguez Zapatero has had to initiate a tough austerity program in order to rein in public spending.

The Spanish bonds sale comes a day after Portugal successfully auctioned off 1.25 billion euros worth of 10-year bonds with strong interest and high rates.

The two sales have eased market pressures somewhat; however, many analysts still fear there is a real chance Portugal might be next in line for a bailout after Greece and Ireland.

Italy also released the results of a bonds sale late Thursday, with the government of Prime Minister Silvio Berlusconi raising 6 billion euros from five and 15-year bonds, albeit at unexpectedly higher rates.

Eurozone inflation on the rise

Jean-Claude Trichet

The ECB's Trichet says the eurozone economy remains highly uncertain

The European Central Bank (ECB) however warned the eurozone needed to remain under close scrutiny over fears of growing inflation.

"We see evidence of short-term upward pressure on overall inflation, mainly owing to energy prices," ECB President Jean-Claude Trichet told a news conference on Thursday.

He said he was confident that "inflationary pressure over the medium term should remain contained," but added that "at the same time, very close monitoring is warranted."

Inflation in the eurozone jumped to 2.2 percent in December while the ECB’s target is to keep it just under 2 percent. Earlier on Thursday, the bank was to keep its interest rate at a record low 1 percent for the 20th month running.

The ECB chief reaffirmed his support for an increase to the EU rescue fund for ailing economies but urged countries to do their utmost to meet their deficit targets and put government debt firmly on a downward trajectory. The eurozone economy was "positive," he said, but with high uncertainty.

Author: Darren Mara, Andreas Illmer (dpa, AP)
Editor: Martin Kuebler

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