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Spain keeps bailout options open

Spanish Prime Minister Mariano Rajoy said on Friday that Madrid would decide whether to seek help from eurozone rescue funds once the ECB has given more details on planned rescue measures.

Speaking at a news conference following a cabinet meeting, Rajoy said he was ready to do what is "in the best interest of the Spanish people," hinting that an international bailout for Spain was at least being considered once the European Central Bank (ECB) reveals what measures it intends to take to help save struggling eurozone countries.

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Spain bond rate soars

"What I want to know is what these measures are, what they mean and whether they are appropriate and, in light of the circumstances, we will make a decision, but I have still not taken any decision," he told reporters.

After a meeting with his Italian counterpart on Thursday he had refused to comment on whether Spain would seek a full bailout. His comments on Friday are seen as the first sign that Spain is seriously considering a full-scale bailout.

ECB sets strict conditions

ECB President Mario Draghi said on Thursday that the central bank could intervene directly in the bond markets, but only once the governments of struggling eurozone members agreed to sign up to the strict conditions laid down by the bailout funds - the European Financial Stability Facility (EFSF) and its eventual successor, the European Stability Mechanism (ESM).

Draghi also hinted at additional measures without providing details.

Spain's banks and regions are sitting on massive mountains of debt after a property boom went bust in 2008, triggering a downturn. The recession is likely to last well into next year, meaning that Spain will continue to find it difficult to secure funding at reasonable interest rates.

Spain's 10-year-bonds traded at around 7.6 percent last week, a level of interest seen as unsustainable. Rates have come down slightly, but not enough to make credit affordable.

Spain's banking sector has already been granted a loan of up to 100 billion euros ($123 billion) for banks saddled with toxic assets.

Rajoy's cabinet boosts savings plan

Rajoy's cabinet, meanwhile, tackled overspending on Friday by increasing intended budgetary cuts over the next three years to 102 billion euros. His government said it had submitted its plan containing cuts and revenue increases to the European Commission for appraisal.

That plan includes a previous austerity package of 65 billion euros comprising rises in value added tax and removal of workers' Christmas bonuses.

On Thursday, Draghi had said that financially troubled countries wanting the ECB to buy their debt needed to sign up to conditions laid down by the eurozone bailout funds. Rajoy's government aims to trim the budget deficit which stood at 8.9 percent in 2011 down to 2.8 percent in 2014.

Rajoy on Friday said: "We have lived on too much credit. For a long time, we spend more than we had."

Protests continued on Friday, with rail workers staging a 24-hour strike against rail reform plans. Hundreds of trains were cancelled.

In Catalonia, striking workers burned barricades on rails. Protestors clashed with police at Madrid's Atocha railway station.

ng/ipj (Reuters, AFP, AP)

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