Under-pressure Spain eyes bank rescue cash

Spanish banks may get their European rescue funds within weeks, the government said Wednesday, amid concern the state may yet need a full-blown bailout.

Under pressure from financial markets, the economy ministry said it was discussing with European authorities the disbursement of the first part of a bank rescue loan package of up to 100 billion euros ($123 billion).

"We are working on the demand for funds for Bankia" and three other nationalised banks -- CatalunyaCaixa, Novagalicia and Banco de Valencia, a source in the ministry told AFP.

"The deadlines are open. There is an instalment of 30 billion euros and a possibility of an earlier injection," the source added.

Spain's government had planned to announce after the results of an audit, due in September, how much the four banks need to get from a 30-billion-euro ($37 billion) first instalment of eurozone loans.

That is part of the credit line of up to 100 billion euros agreed last month by the eurozone countries to stabilise Spain's banks, which are struggling with mountains of bad loans from a property bubble that burst in 2008.

Spanish daily El Pais, citing ministry sources, reported Wednesday that the rescue funds for Bankia were being finalised and would be transferred to it within days.

The money is due to be transferred via a Spanish government bank restructuring fund.

For the bank aid to be released, Spain must make a formal request which must be approved by the European Commission, the European Central bank and eurozone countries.

European Commission spokesman Olivier Bailly said that once the request is made, the process of approving and transferring the funds would take between a few days and two weeks.

Bankia's share price shot up by more than 18 percent on the Madrid stock exchange in afternoon trading Wednesday after the reports, but this was only a fraction of its losses since it listed on the market in July 2011.

It was formed in 2010 by the merger of several regional savings banks as part of a costly restructuring of a banking sector stricken by the financial crisis.

In May this year it turned to the government for a 23.5 billion euro bailout which drove Spain to seek the eurozone rescue funds for its finance sector.

Bailly told reporters in Brussels on Wednesday that Spain had not yet formally submitted a request to activate the aid programme.

"We can take a decision any time day or night..." Bailly said. "For the moment, the obstacle is that we have not received a request."

Spanish Prime Minister Mariano Rajoy has announced a series of unpopular pay cuts and tax hikes in his efforts to lower Spain's deficit, but his country remains pressure from financial markets where Spain's borrowing costs have reached unsustainable levels over recent weeks.

There is considerable concern the country will eventually need a full bailout like Greece, Ireland and Portugal.

"Some analysts are forecasting that the Spanish government will end up asking for help from European rescue funds," economists at Link Analysis wrote in a note.

Intervention by these funds and the European Central Bank could "put an end once and for all to the exorbitant interest rates that the markets are demanding of Spain to finance itself."

However an EU source said Tuesday that Spain was reluctant to seek a broader bailout if it meant accepting more tough conditions on top of the planned savings of 102 billion euros by 2014 to comply with deficit targets set by Brussels.

The source said Rajoy was waiting for a European Commission assessment of the new 2013-2014 spending targets, the results of which are expected by mid-September at the earliest.