Madrid stocks slump on bailout fears

European equity markets mostly rose on Tuesday but Madrid tumbled on fears that debt-plagued Spain could be forced to seek a bailout as state borrowing rates spiked close to the 7.0-percent danger level. In late morning stock market trading, London's benchmark FTSE 100 index climbed 0.09 percent to 5,361.37 points, Frankfurt's DAX 30 rose 0.63 percent to 6,361.74 points and in Paris the CAC 40 gained 0.38 percent to 3,054.54. Spain's IBEX 35 index though dived 1.67 percent to 6,295.4 points, as the interest rate on Spanish 10-year government bonds surged to a euro-era record at almost 6.5 percent. In foreign exchange deals, the European single currency fell to $1.2536 from $1.2541 late in New York on Monday. It had briefly struck a 22-month low at $1.2496 on Friday on eurozone debt crisis worries. "It is no surprising Spain equity market is suffering losses," said trader Anita Paluch at Gekko Global Markets. "The negative sentiment is prevailing, as investors are watching the Spanish bonds to hit 7.0-percent mark -- a level that is considered a breaking point, at which Spain will need to revert to international financial help in order to get out of trouble. "It's actually something we have seen back in the days when Greece, Ireland and Portugal had to be bailed out." Madrid stocks had already plunged 2.17 percent on Monday as troubled Spanish lender Bankia lost 13.38 percent after it sought a record 19-billion-euro ($24-billion) state bailout. Spanish banks are at the heart of fresh market fears that the eurozone's fourth-largest economy might have to seek an international financial bailout. "Bankia, the bank crippled by the collapse in the real estate market, is adding to the worries about the banking sector and the amount of debt they hold and the most recent figures in retail sales are not really helping the whole picture," said Paluch. "So, all in all, Spain seems to be the new problem child in Europe," she added. Asian equities had risen in earlier trade as dealers picked up bargains after heavy selling through May, with confidence boosted by hopes that Greece will avoid exiting the eurozone. Hong Kong jumped 1.35 percent, Shanghai rallied 1.20 percent, Sydney won 1.14 percent and Tokyo rose 0.74 percent. Shares also received a lift on hopes that China will implement new stimulus measures to raise domestic demand and fast track some major construction projects. Investors, however, remained nervous by eurozone debt woes as attention turned towards the eurozone. "Spanish markets continue to come under pressure as concerns remain as to how the Spanish government will be able to avoid a bailout as concerns about the health of its banking sector rise," said CMC Markets analyst Michael Hewson. Spain's Prime Minister Mariano Rajoy had acknowledged on Monday that the state was struggling to borrow. Rajoy also attempted to soothe investors by saying that his government would not have to follow Greece, Ireland and Portugal in asking for a bailout to help pay its bills. In Asia on Tuesday, dealers took heart from a report in the state-run Shanghai Securities News that Beijing would introduce measures to jumpstart demand for automobiles. The news stoked expectations of more stimulus for other parts of the economy after a string of recent data indicating the world's number two economy is easing. In the United States on Monday, Wall Street was closed for the the Memorial Day public holiday.