Markets under pressure following surge in Spanish borrowing costs

A surge in Spain’s borrowing costs to a fresh euro-era high put European markets under more pressure today.

The FTSE 100 Index fell 22.4 points to 5461.4 after the implied interest rate on Spain’s benchmark bonds pushed above 7% – the level at which Portugal, Greece and Ireland were forced to seek bailouts.

It is the first time Spain’s borrowing costs have entered so-called bailout territory since the euro was formed and indicates investors are unconvinced by a recent agreement to bail-out the country’s banks with up to €100bn.

Craig Erlam, market analyst at Alpari said: “Questions are now bound to be raised about how long it will be until a full Spanish bailout will be agreed.”

It came after a key ratings agency warned that Spain’s debt could be downgraded to junk status in the next three months.

The fears over Spain added to worries that an election in Greece on Sunday will see anti-austerity parties win power in a move that could cause the country to crash out of the currency bloc.

Other markets in Europe were also lower, with Germany’s Dax and France’s Cac-40 both off 0.4%.

However, banks were higher as the Treasury confirmed a key concession in its banking reforms by broadening the range of activities allowed within ring-fenced businesses. Royal Bank of Scotland was the biggest riser, ahead 6.6p at 229.1p.

Meanwhile, BSkyB and BT were among the biggest fallers in the top flight after they won an austerity-busting £3bn auction of Premier League football rights.

There was widespread surprise at the 70% increase in the value of the new three-year contract, with long-term rights holder BSkyB down 6%, or 38.7p at 656.75p, as a result.

Investec Securities expressed concern about the emergence of BT as a more potent competitor than current rights holder ESPN.

However BT was also down 4% or 7.65p to 201.45p amid concerns about the price paid for securing 38 games a season.

Elsewhere in the top flight, Burberry shares were 3% lower, off 38.5p to 1302.5p, after fellow luxury goods group Mulberry announced a slowdown in its recent sales growth.

Mulberry’s shares were 23% lower, off 458p to 1555p, even though it kept up its recent explosive growth with a 54% jump in pre-tax profits to £36m. Analysts said the performance was slightly below their forecasts.

And shares in Carphone Warehouse rose despite flat earnings at its European business, as it remained hopeful it could revive its pre-pay markets with cheaper deals on smartphones. Shares were up 6%, or 8p at 138p.