The International Monetary Fund reiterated it has no plans to provide financial aid to Spain, as the country's debt costs soar after unveiling a rescue plan for its banks.
But it urged Spain to stick to commitments to push through needed economic and financial reforms as worries mounted Madrid could be forced to seek a broader bailout.
"There has been no request for IMF financial assistance nor any plans at the IMF for such assistance," spokesman Gerry Rice told reporters.
"It's also important at the same time, of course, that the reform programme that the Spanish government has undertaken continues to be implemented as they are doing," he added.
Earlier today, Spain's borrowing costs broke euro-era records after Moody's downgraded its debt close to junk bond status.
The interest rate on Spanish 10-year government bonds soared past 7% from 6.721% the previous evening. They later eased to stand at 6.929% this evening.
The IMF is strongly in support of the €100 billion European Union commitment to help Spain strengthen its feeble banks, even if the global crisis lender itself is not contributing to the rescue, its spokesman Gerry Rice said.
"Spain took the right step when deciding to secure a backstop for its financial sector. The scale of the financing gives assurance that the financing needs of the Spanish banks will be fully met," Rice said.
The IMF is participating by helping to monitor Spain's banks under the rescue.
Meanwhile Rice also said the IMF was not in any discussions to contribute to the European emergency funding vehicles - the current European Financial Stability Facility and the European Stability Mechanism to replace it - that are to be used to help Spain's banks.
A weekend deal for euro zone powers to extend a bailout loan of up to €100 billion to salvage Spain's stricken banks failed stop an intensifying storm on the debt market.
Instead, the sheer size of the rescue loan fed fears about its impact on Spain's mushrooming sovereign debt and prompted concerns that the state may eventually need rescuing itself.
The Spanish crisis is unfolding against the background of Sunday's Greek elections.
It is further destabilising markets that fear a victory by anti-austerity parties could send Athens back to the drachma.
The increasing cost of borrowing for Spain follows a three notch downgrade by rating's agency Moody's and ECB figures which show that Spain borrowed a record €287.8 billion in the month of May.
Such high interest rates are regarded by many analysts as impossible for the nation to afford to finance its activities over the longer term, raising the risk of a bigger bailout, just as was the case for Greece, Ireland and neighbour Portugal.
Moody Investors Service slashed Spain's sovereign debt rating by three notches last night to Baa3 and left it on review for a possible further downgrade. Since many institutional investors are barred from buying bonds that are rated as junk, or non-investment grade, the prospect of a further downgrade sent a further chill through the market.
Spain's government insists the euro zone rescue loan, destined to recapitalise banks whose books are heavily exposed to a 2008 property market crash, will be repaid by those lenders who receive the money. But the final responsibility for repaying the euro zone is clearly Spain's, Moody's said.
"This will further increase the country's debt burden, which has risen dramatically since the onset of the financial crisis," the agency said in a statement.
ECB loans to Spanish banks hit new record in May
Spain's ailing banks boosted borrowing from the European Central Bank to a new record in May, official data showed today, as they took advantage of emergency cheap loans.
Borrowing surged to €287.8 billion from €263.5 billion in April for the fifth consecutive monthly record, Bank of Spain figures showed. The ECB pumped more than €1 trillion in cheap loans into the European banking system in two operations in December and February, seeking to avert a dangerous credit squeeze.
Spanish banks have found it hard to borrow money from banks in other eurozone countries because many in Spain are heavily exposed to the property sector, which has been in a slump since a bubble burst in 2008.
Madrid agreed Saturday a €100 billion bailout for its stricken banking sector but after an initial positive reaction, markets turned sharply, pushing Spain's borrowing costs above the 6% danger line.
Audit to show Spain banks need up to €65 billion - report
An audit of Spanish banks will show they need up to €65 billion of fresh capital, the ABC daily said today, citing a draft report by auditors Oliver Wyman and Roland Berger.
The audits will reveal capital needs of €60 billion, the newspapers said, adding Spanish Economy Minister Luis de Guindos has already been informed of this amount.
The figure could rise to €65 billion "depending on the behaviour of each lender in a more or less difficult scenario."
Bankia, whose nationalisation last month pushed Spain to seek the European rescue for its banks, alone will receive €19 billion, ABC said. That is the amount it requested from the government last month to clean up its accounts, the largest bailout in Spanish history.
Two other banks that have been taken over by the state, Novagalicia and CatalunyaCaixa, will each receive €10 billion.
Spain's largest banks, Santander, BBVA and Caixabank, along with Bankinter and KutxaBank, will not need European aid, the newspaper reported.
The amount which each bank will need will not be detailed in the final report by the auditors, it added.
Banco Popular, Spain's fourth-largest bank by market capitalisation, said on Monday that it would not need aid.
S&P warns Spain home prices set for further 25% plunge
Prices of Spanish homes, which lie at the core of the nation's financial crisis, could plunge by another 25% in a slump lasting up to four years, Standard & Poor's warned today.
Spain's property market crashed in 2008, throwing more than a million people out of work, exposing banks' reckless loans, and sharply reducing regional governments' income.
Since the first quarter of 2008, nominal house prices have declined 22%, more than any other euro zone country except for Ireland, Standard & Poor's said in a report.
"However, the magnitude of the decline has to be juxtaposed against the 150% rise in prices in Spain between 2000 and the peak in 2008," said the report by Jean-Michel Six, Standard & Poor's chief economist in Europe, the Middle East, and Africa. In the same period, euro zone home prices on average climbed by 60%, it said.
"A look at each of the major trends affecting Spain's residential real estate market - the housing overhang, household debt, housing price ratios, and unemployment - indicates that the correction is likely to take up to four more years," the report said.
"In addition, price fundamentals show that a further 25% drop in housing prices could be in order," it added.
Estimates of Spain's stock of unsold homes range from 680,000 according to government figures to 818,000 according to CataunyaCaixa bank, the rating agency said.
With annual demand at about 300,000 homes on average, and with about another 80,000 new homes being built every year, it should take four more years to balance supply and demand, it said. Home mortgages, accounting for 75% of all household debt, had multiplied 2.5 times between 2003 and 2010, it said, while the length of these loans grew from an average 12 years in 1990 to 28 years in 2007.
House prices fell by an average 6% a year from 2008 to 2010 before slumping by 9% in 2011, it added. But despite new mortgages drying up, household debt eased much more slowly, now standing at 81% of total economic output compared to 87% in June 2010.
That debt ratio would have to fall to the long-term average of about 66% of economic output before house prices could steady, the agency said, estimating the process could take four years.
Just comparing Spanish home prices to the level of people's incomes and the cost of renting, housing prices needed to decline by nearly 25% to return to long-term averages, it said.
"The bursting of the real estate bubble is visible in Spain's dire economic prospects," said the agency, which tips an economic contraction of 1.5% this year and 0.5% in 2013. It noted in particular that the construction sector slump led to the loss of 1.5 million jobs between 2008 and March 2012.
High unemployment made it harder for people to pay their mortgages, especially when 90% of home loans in Spain carry a variable rate, compared to a euro zone average of 40%, the agency said.
In February 2012, as the unemployment rate reached 24%, doubtful loans amounted to 2.8% of total housing loans, a ratio that appeared "reasonably low", it said.
"But as the economy continues to weaken, we will continue to watch that indicator carefully as a potential harbinger of additional financial difficulties in the household sector," S&P's stated.
