21 Dec 2011

Short-term borrowing costs drop for Spain

5:29 am on 21 December 2011

Spain's borrowing costs on short-term bonds have fallen sharply, a sign of easing tension in the eurozone sovereign debt markets.

Madrid raised 5.6 billion euros ($US7.3 billion) from six and three-month bonds, 1 billion euros more than planned.

Interest rates on the six-month bonds were 2.4%, down from 5.2% paid in a similar auction last month.

Incoming prime minister Mariano Rajoy has pledged to cut government spending sharply in the coming year.

He has told parliament that he aims to cut the budget deficit by 16.5 billion euros next year.

This would bring the deficit down to about 4.4% of overall economic output in 2012. Spain's deficit last year was 9.2%.

While there are doubts whether the target can be met, the BBC reports the pledge has reassured markets that the administration will tackle Spain's rising debts.