Spain Passes Second Bond Auction Test with €4.6bn Sale Amid Global Market Jitters
Spain's Prime Minister Mariano Rajoy looks on during a conference in Madrid

Spain's unemployment rate rose again in September as the summer tourist season failed to add jobs to the sagging economy.

Nearly 5 million Spaniards are out of work, according to official Labour Ministry figures released Tuesday, after a 1.7 percent rise in the jobless rate added another 79,645 to unemployment rolls. The numbers represent the second consecutive monthly rise during the peak of the tourist season and will make grim reading for Prime Minister Mariano Rajoy and his Economy Minister, Luis de Guindos, as they prepare to implement their harsh deficit reduction measures amid one of the worst recessions on record. Spain's overall unemployment rate is now a record 25.1 percent.

Spanish stocks fell around 0.7 percent in early trading and benchmark 10 year bond yields were little changed at 5.9 percent following the data release.

Broader European shares, however, remain weak as investors prepare for both a Moody's Investors Service review of Spain's investment grade credit rating and any official hint that Spain will seek a formal European Union bailout.

Reuters reported late Monday that Spain is close to requesting aid from its European partners, but it is being persuaded to wait by reluctant German officials who feel lawmakers in the Bundestag will have a difficult time justifying a full Spanish rescue so soon after rubber-stamping a €100bn aid package for the Spanish banking system in June.

Economy Minister de Guindos told a news conference in Madrid Monday that he and Prime Minister Rajoy were looking closely at the terms and conditions linked to the ECB's programme of unlimited bond purchases just days after its controversial budget statement and bank audit results, which some analysts suggest could pave the way for a bailout worth as much as €100bn.

EU Economic and Monetary Affairs Commissioner Olli Rehn said Monday his office will give a formal reply to the Spanish budget plans in November, but praised the reforms laid out by Rajoy and de Guindos and said he was confident the pair would take the necessary steps to restore health to Europe's fourth-largest economy.

Spain published details of its long-awaited private auditing of the banking sector late Friday, with consultants Oliver Wyman and Roland Berger reporting a total capital need of around €59.3bn for it to survive the expected economic downturn. Around €40bn is expected to come from the rescue package previously arranged with Spain's EU partners in June. The remainder will be raised in private offerings by the banks themselves.

In its regular weekly Credit Outlook, Moody's analysts Maria Jose Mori and Alberto Postigo suggested the stated capital requirement would fall short of stabilising Spain's banks.

"The recapitalisation amounts published by Spain are below what we estimate are needed for Spanish banks to maintain stability in our adverse and highly adverse scenarios," the pair wrote. "According to our estimates, banks will need between €70 billion and €105 billion of capital to recognise their embedded losses upfront and still meet the 8% or 10% capital requirements established in previous legislation."

Independent US ratings firm Egan Jones slashed its own rating on Spain deeper into junk status Monday, the seventh cut so far this year, taking it to CC from CC+.