Spain rattles markets amid fears more regions need help

Markets have fallen on fears Spain's indebted regional governments will push the country into seeking a full national bailout.

On Friday, Valencia, one of the country's 17 regions, asked the central government for a financial lifeline.

On Sunday, a local newspaper in Murcia quoted its government's head as saying it would ask for funding help of up to 300m euros ($363m; £233m).

The yield on Spain's 10-year bonds has jumped to 7.55%.

On Friday, the bond yield - which implies the interest rate the government would have to pay to borrow new money, and acts as a measure of investor confidence in Spain's creditworthiness - had been 7.28%.

Germany's 10-year borrowing costs have fallen to 1.13%, reflecting investors' trust in the country, leaving a record difference between the yield on German and Spanish bonds.

There was more bad news for Spain on Monday when the Bank of Spain said the country's economy contracted by 0.4% in the three months to the end of June.

Spain has already asked for and been granted a 100bn euros bailout for its banks, so far avoiding asking for the same sort of national bailout that was needed by Greece, the Republic of Ireland and Portugal.

Stock markets fell across Europe on Monday morning, averaging losses of 1.5%, while Spain's main Ibex share index was down more than 4%.

Spain is heading for a general bailout. It may not happen immediately, but that is what the figures suggest - that sometime in the autumn, maybe sooner, the country will need a full-blown rescue”

Spanish bank shares were down heavily again, with losses of 4%. Bankia was again the worst-hit and was down by 8%, matching Friday's loss.

Italy, which is also struggling with high debts, saw its main share index fall 2.5% with banks the worst hit. UniCredit and Intesa Sanpaolo were among six Italian banks suspended from trading after their share prices fell sharply.

The price of oil has also fallen by 2%, a sign that markets think there will be waning demand for oil as a result of worsening economic prospects.

In Asian trading overnight, the euro fell to an 11-year low against the Japanese yen - which has acted as a haven currency since the 2008 financial crisis - on worries over the situation in Spain.

The euro fell to 94.37 yen, its lowest level since November 2000.

"The fear now is that, given its debt woes, Spain may eventually need a bailout from the International Monetary Fund or the eurozone's rescue fund," Justin Harper of IG Markets told the BBC.

"That is driving investors away from the euro to other relatively safer-haven assets."