Spain fears send euro lower, earnings lift European stocks

[epicresearch]

A sharp rise in Spain's borrowing costs on Thursday sent the single currency lower as fears rose that a full sovereign bailout was inevitable, but European shares hit 11-weeks highs as second-quarter company results lifted sentiment.

Despite all the efforts by Madrid to cut its budget deficit and tackle problems in its banking system, government bond yields rose sharply at an auction of two- to seven-year debt.

"We're still waiting for the bank bailout to be finalised, and there's no guarantee that Spain itself won't need a bailout at some stage," said Marc Ostwald, a strategist at Monument Securities in London.

In the immediate aftermath of the auction, 10-year Spanish government bond yields extended their recent rises, adding a further 7.3 basis points on the day to 7.03%. Five-year yields were up 10 bps at 6.44%.