Spain's short-term cost of borrowing hit three-year highs and demand fell at its Treasury bills auction while yields at a sale of six-month Italian paper hit their highest since November 2008.

"The most important point again is the fact that relative to the last auction yields are much, much higher," said Marc Ostwald, a strategist at Monument Securities in London.

"It shows we may have had some relief last week, but that relief has proven to be rather short-lived."

Spanish and Italian benchmark bond yields rose after the auctions and the premium demanded to hold Spanish debt rather than lower-risk German bonds widened, reflecting investors' doubts that European policymakers have resolved a crisis that has forced Greece, Ireland, and Portugal to seek international aid.

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