Spain 10-year bond yield soars to 6.45 pct

[August 02, 2011]  MADRID (AP) -- The yield on Spanish 10-year bonds struck a euro-era high of 6.45 percent on Tuesday as investors worried about the impact of an economic downturn in the U.S. on Europe's weaker countries.

Shortly after trading began, the spread, or difference between the yield on the Spanish bonds and the benchmark German equivalent, reached 404 basis points, its highest since the euro was introduced. It closed on Monday at 375 points.

Trading on Madrid's stock exchange was down 0.4 percent after losing 3.4 percent Monday.

Investors on Monday were spooked by a surprise decline in a closely-watched U.S. manufacturing survey, that stoked fears that the economic recovery was coming to a standstill.

In recent months investors have been demanding higher rates to lend money to Spain, raising fears that it could be next in Europe to require a rescue package after Greece, Ireland and Portugal.

An economic slowdown in the U.S. and the global economy would put added pressure on weak countries like Spain, which badly need growth in coming years to lower their debt.

Spain is struggling to recover from nearly two years of recession triggered in large part by the collapse of an overheated real estate sector. The jobless rate stands at nearly 21 percent.

Earlier Tuesday, the Labor Ministry said the number of people filing claims for unemployment benefits fell by 42,059 in July as the summer tourism season provided new jobs.

It was the fourth straight monthly decline and left the number receiving benefits at 4.08 million, down from 4.12 million the previous month.

But the figure was still up by 4.4 percent when compared to July 2010.

The Labor Ministry said much of last month's decline in jobless claims came in the services sector.

[Associated Press; By CIARAN GILES]

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