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Euro slumps again as Spanish debt fears rise

May 26, 2010 | 11:02 am

The euro is sinking again Wednesday after investors demanded sharply higher interest rates on Spanish government bonds -- raising fears that Europe’s debt crisis is entering a new and more dangerous phase.

Greece’s government debt woes sparked the crisis beginning last fall, but Spain is of far greater importance because its economy is the world’s eighth-largest.

Spanish banking giant BBVA (Banco Bilbao Vizcaya Argentaria) has been unable to roll over $1 billion in short-term funding this month as investors have grown doubtful about Spanish banks’ creditworthiness, the Wall Street Journal reported.

The yield on two-year Spanish government notes jumped to 2.36% Wednesday from 2.15% Tuesday, the biggest increase since the yield spiked to 2.91% on May 6 -- just days before the European Union agreed to a plan to lend nearly $1 trillion to struggling European nations over the next three years, if needed. Spanish bond yields tumbled after the plan was announced but have rebounded this week.

The beleaguered euro has fallen to $1.224 Wednesday from $1.232 Tuesday, though it’s holding above the recent intraday low of $1.214 set on May 18.

-- Tom Petruno