Spanish Economic Woes Rattle Investors as European Markets Slide

A slide in Spanish stocks and bonds deepened as investor concerns that Prime Minister Mariano Rajoy may require international aid rattled European markets.

Spain, the euro region’s fourth-largest economy, is in “extreme difficulty,” Rajoy said yesterday, raising the likelihood of a bailout for the second time this week. French borrowing costs rose at an auction today, German bunds gained and the Swiss franc rose above the central bank’s target of 1.20 per euro as investors sought a haven.

A rally triggered by more than $1 trillion of European Central Bank loans to the region’s financial institutions to stave off a credit crunch is running out of steam and, while Italian Prime Minister Mario Monti is pressing ahead with an economic overhaul, Rajoy is failing to meet deficit targets amid a worsening recession.