A record drop in retail sales added to Spain's economic woes on Tuesday as the government struggled to boost market confidence in the crippled banking industry and investors remained doubtful of the country's ability to get a grip on its debts amid a recession.

Retail sales dropped 9.8 percent year-on-year in April as the country battled against its second recession in three years and a 24.4 percent jobless rate that is expected to rise. The fall in sales was the 22nd straight monthly decline, and was more than double the 3.8 percent year-on-year fall posted in March, the National Statistics Institute announced.

A gloomy Bank of Spain report heaped more bad news on the government. The central bank said it predicts the economy will keep shrinking at least until the end of June, after contracting 0.3 percent in the first quarter, as Spain endures a double-dip recession. The government has predicted a 1.7 percent contraction for the whole of 2012.

The interest rate, or yield, on Spanish 10-year-bonds rose to 6.45 percent, moving closer to the 7 percent seen as unsustainable. The IBEX stock index closed down 2.3 percent, the steepest fall among Europe's main markets.

Bank of Spain governor Miguel Fernandez Ordonez announced after markets closed that he is stepping down a month before his term ends in mid-July. The central bank said in a statement that Ordonez decided a new governor should be in place by June 11, which is the deadline for Spanish banks to provide the government with their recovery plans as part of an expected wholesale reform of the country's financial system.

The conservative government, which came to power in December, has made little effort to hide its belief that Ordonez, who as governor has had oversight of the banking sector, is partly to blame for Spain's economic mess.

The crisis has compelled the government to introduce unpopular austerity measures, including spending cuts on health and education, as it attempts to control the level of its debt relative to the size of its economy.

The government is also trying to reassure investors worried that the woes of the banking sector will force the country to require a bailout like those take by Greece, Ireland and Portugal. Spain's lenders have a large amount of unpaid, so-called "toxic", loans on their books following the collapse of the country's real estate bubble in 2008. There is concern that Spain's government will not be able to find the funds to prop up the sector and keep its economy afloat.

Last week, Bankia, Spain's fourth-largest bank that the government nationalized this month, announced it would need a further (EURO)19 billion ($23.88 billion) in state aid to shore up its defenses against losses from its toxic loans. News of the bailout, and concerns over how the government would raise the money, sent the IBEX stock index to a nine-year low on Monday while the government's borrowing rates jumped to a dangerously high level.

To calm markets, Prime Minister Mariano Rajoy gave an impromptu press conference Monday, insisting yet again that Spain's banking sector would not need a bailout.

At the heart of Spain's banking crisis are the regional savings banks, or cajas, which bore the brunt of the collapse in property prices.

Bankia resulted from a merger of seven cajas. Another three said Tuesday that they were considering a merger. Liberbank, Ibercaja and Cajatres said in statements that their boards would meet later in the day to assess the merits of pooling their resources.

Investors are spooked by the rising estimates of the banks' losses. Late Monday evening, for example, Bankia's parent company restated its 2011 results to reflect a (EURO)3.3 billion ($4.15 billion) loss as opposed to a (EURO)41 million profit.

BFA, or Banco Financiero y de Ahorros, said that about half of this revised amount stemmed from losses at Bankia and that the recalculation was prompted by the nationalization. Bankia's exposure to toxic real estate assets is now calculated at about (EURO)40 billion, as opposed to the most recent total of (EURO)32 billion.

The government is hoping to recapitalize Bankia by issuing new debt on the market, a spokesperson for the Economy Ministry said Tuesday. "That's the first option, for sure," the official said under departmental rules of anonymity.

The government plans to unveil details of the Bankia refinancing plans, and of how the Treasury intends to deal with heavy debts built up by the country's regional authorities, on Friday, the official said.

The Spanish Treasury, meanwhile, announced it is unfreezing (EURO)510.5 million in funds earmarked for the Andalucia regional authority. The government blocked the payment after doubts emerged over whether Andalucia would abide by a commitment to control expenditure. The Treasury said in a statement it was releasing the funds after a written undertaking from the Andalucia government to comply with spending plans previously agreed with Madrid.

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Barry Hatton contributed to this story from Lisbon, Portugal.