The European Commission threw Spain, the latest frontline in Europe's debt war, two potential lifelines on Wednesday, offering more time to reduce its budget deficit and direct aid from a euro zone rescue fund to recapitalise distressed banks, Reuters reported. Spanish government borrowing costs lurched higher and the Madrid stock market hit a nine-year low with investors rattled by the parlous state of its banking sector fleeing to the relative haven of German bonds.

Continued concerns about Spanish banks sent the country's stock market to fresh nine-year lows, the two-year German yield to zero and the euro to its weakest level against the dollar in nearly two years, The Wall Street Journal reported. Investors scrambled for safe havens, dumping stocks as well as debt from Italy and Spain, two financially stressed nations that also are among the biggest in the 17-nation euro zone.

A debt-laden Spanish construction firm became the latest European company to unload assets onto eager Chinese buyers, as Europe's debt woes force firms to look to China for cash, The Wall Street Journal reported. State Grid Corp., China's government controlled power-grid operator, said Tuesday it would buy high-voltage electricity transmission assets in Brazil from Spain's Actividades de Construccion y Servicios SA for 1.86 billion reais ($938.2 million), including debt.

Three small Spanish savings banks agreed to merge and a larger bank separately said it would sell a key asset as local lenders scramble to shore up their capital bases in the midst of an unprecedented financial crisis, The Wall Street Journal reported. Unlisted savings banks Liberbank, Ibercaja and Caja3 said Tuesday their boards approved a three-way merger of relatively healthy lenders that will create a bank with more than €110 billion ($137.96 billion) in assets and a dominant position in the northern Spanish regions of Asturias and Aragon.

Spanish Prime Minister Mariano Rajoy called for a show of force from European authorities as his government sought ways to avoid tapping markets to fund the bailout of the nation’s third-biggest lender, Bloomberg reported. “Europe has to dissipate any doubts about the euro,” the premier told a hastily called news conference in Madrid yesterday.

The Spanish government will provide about €9 billion ($11.4 billion) to cover Bankia SA's provisioning needs, Finance Minister Luis de Guindos said on Wednesday, in the latest sign that Spain's economic deterioration is forcing authorities to inject more public funds to bail out ailing banks, The Wall Street Journal reported.

Two weeks have passed since Bankia was part-nationalized, yet Madrid still hasn't explained how it plans to recapitalize Spain's biggest domestic lender, The Wall Street Journal reported. That is a long time to leave a systemically important bank in limbo. Unless the government acts fast to end the uncertainty, confidence in its ability to handle the crisis will continue to evaporate. Madrid was poorly prepared to take control of Bankia, only hiring Goldman Sachs to advise on options two days after it agreed to convert €4.5 billion ($5.75 billion) of preference shares into equity.

Spain's government said 16 of the country's 17 regions are on track to meet this year's budget targets, a key part of its efforts to slash a towering budget deficit and ward off an international bailout, The Wall Street Journal reported. Budget Minister Cristóbal Montoro on Thursday hailed the approval of the regional spending plans, which have implemented measures equal to €18 billion ($22.9 billion) of spending cuts and increased tax revenue.

Spain denied there was a deposit flight from troubled lender Bankia SA Thursday as shares in the partially nationalised bank plunged by as much as 30 per cent, the Irish Times reported. "It's not true that there is an exit of deposits at this moment from Bankia," economy secretary Fernando Jimenez Latorre, who reports to the economy minister, told a news conference. The government on May 9th took over Bankia, the country's fourth-largest lender, in an attempt to dispel concerns over the bank's ability to deal with losses related to the 2008 property crash.

Spain's clean-up plan for its troubled banks lacks some of the key ingredients that helped other governments restore faith in their financial sectors, restructuring experts said, pointing to a potential need for heavier state intervention, Reuters reported. Madrid told lenders on Friday to put aside even more funds against potential losses from dubious property loans, but limited its role in the rescue to providing high-interest financing for the weakest banks.