European equity markets mostly rose on Tuesday but Madrid tumbled on fears that debt-plagued Spain could be forced to seek a bailout.
State borrowing rates spiked close to the 7.0% danger level.
In late morning stock market trading, London's benchmark FTSE 100, Frankfurt's DAX and in Paris the CAC all gained.
Spain's IBEX 35 index though dived 1.7% to 6,295 points, as the interest rate on Spanish 10-year government bonds surged to almost 6.5%.
In foreign exchange deals, meanwhile, the European single currency fell to $1.2536 from $1.2541 late in New York on Monday. It had struck a 22-month low on Friday on euro zone debt crisis worries.
At the same time, the risk premium which Spain must pay to borrow compared with benchmark German borrowing rates rose to a record 5.156 percentage points in mid-day trading today on tension over Spanish banks.
The interest rate which Spain must pay to borrow for 10 years, as indicated by trading in bonds on the secondary market, was nearly 6.5%. But the German 10-year rate, the lowest in the euro zone, fell to a record low point.
Madrid stocks had already plunged 2.17% on Monday as troubled Spanish lender Bankia lost 13.38% after it sought a record €19 billion state bailout.
Spanish banks are at the heart of fresh market fears that the euro zone's fourth-largest economy might have to seek an international financial bailout.
Banco Popular aims to sell online banking
Spanish bank Banco Popular, whose debt has been downgraded to junk-bond status, revealed today it is in talks to sell its online banking business as it tries to bolster its balance sheet.
Banco Popular shares slumped 4.32% to 1.64 euros after the news broke that it is seeking new capital to meet tough new banking requirements, adding to a 7.57% plunge the previous day.
"Banco Popular is in negotiations for the sale and outsourcing of a majority stake of its internet banking and means of payment businesses, although no agreement has been reached as of today," it said in a statement.
"This transaction, similar to others already carried out by the entity, would strengthen the position of the Grupo Banco Popular in the face of requirements of the reform of the Spanish financial sector."
