(AP) BERLIN - Germany's Chancellor Angela Merkel has insisted repeatedly that "if the euro fails, Europe fails."

Now the crisis in the 17 countries that use the euro is coming back to the boil, with Spain admitting it needs help to rescue its banks and voters in Greece deciding whether to back a party that could pull out of the single currency. And all eyes are on economic powerhouse Germany to see what it will do to save Europe's union from collapse.

There's no denying Merkel's commitment to keeping the common currency together. But that doesn't mean she's ready to take the politically difficult measures many say are needed to save the day. She appears torn between freeing funds to rescue a wider European dream and pressures from her narrower power base at home.

Europe debt meltdown: How did we get here?
Euro crisis: How to protect your money
What will happen if Greece leaves the euro?

Which way she turns will be critical to Europe's future - and the fate of the global economy.

The two sides of the leader who can make or break the common currency have been on prominent display at crucial moments of the crisis.

• As Europe's No. 1 budgetary hawk, Merkel was the architect last year with former French President Nicolas Sarkozy of a strict set of fiscal rules designed to put a lid on the chaos of too many governments holding too much debt.
• But she also has a pragmatic side. Notably, she has shown flexibility in signing up to rescue packages she initially resisted - starting with the initial bailout deal for Greece in mid-2010.

It's certainly in Germany's economic interests to ensure the euro has a future. Of Germany's 276 billion euro ($346 billion) in exports in this year's first quarter, nearly 110 billion euro went to other eurozone countries. The full 27-nation EU accounted for more than half of its exports. So Germany desperately needs a stable market close to home.

It's also clear that Europe needs Germany: The nation's GDP of 2.6 trillion euro is 30 percent larger than that of France, the second biggest eurozone economy, meaning Germany alone has the funds to bail out the struggling bloc.

Still, absent a threat of immediate disaster, Merkel has shown little sign of budging from her insistence that help comes with strings attached, that thrift is a fundamental virtue and that there's no magic wand to save the euro. At the recent G8 summit of leading economic nations at Camp David, Merkel cut a lonely figure fending off pressure from fellow leaders to ditch austerity and jump-start growth.

She stuck by her hard line Thursday in a speech to parliament ahead of this weekend's G-20 summit in Mexico.

"We can only overcome the crisis," she said, "when we tackle it at its roots: the massive debt level and the lack of competitiveness in some member states."

When the global financial crisis first flared in 2008, Merkel famously invoked the "Swabian housewife" - the traditional personification of Germany's prudent housekeeping named after a region in the southwest of the country.

"She would have told us a piece of worldly wisdom," Merkel said: "You cannot live above your means in the long term." The image stuck.

Polls consistently show Merkel at or near the top of the list of Germany's most popular politicians. Her tough stance on the crisis has a great deal to do with that popularity.

Merkel led calls to saddle Greece with tough austerity measures, such as cuts in public sector pay and pensions, as part of its two multibillion-euro rescue packages. Germans see it as just desserts for years of profligate spending, while they kept their finances in order.

But the spending cuts have left the Greek economy mired in a deep recession. Angered by the seemingly endless pain, Greeks have turned away from the two traditional parties in elections last month. They voted instead for more radical parties that have vowed to pull the country out of its bailout and austerity agreements. This weekend Greece faces another election. And if it backs a radical left party that promises to ditch its bailout terms, it's hard to see Merkel allowing Greek aid payments to keep flowing.

That could lead Greece to default and force it out of the euro, a move into uncharted territory that could undermine the entire global financial system.

(AP) MADRID - Spain's borrowing rates have hit a high not seen since the country joined the euro in 1999 after a credit ratings agency downgraded the country's ability to pay down its debt.

The interest rate - or yield - on the country's benchmark 10 years bonds rose to a record 6.96 percent in early trading Thursday, close to the level which many analysts believe is unsustainable in the long term and at which countries such as Greece, Ireland and Portugal have sought an international bailout.

The ratings agency Moody's downgraded Spain's sovereign debt three notches from A3 to Baa3 Tuesday evening, leaving it just one grade above "junk status".

Moody's cuts Spain's credit rating
Moody's downgrades Cyprus on Greek euro exit fears

Moody's said the downgrade was due to the offer from eurozone leaders of up to ?,?100 billion to Spain to prop up its failing banking sector, which the ratings agency believes will add considerably to the government's debt burden.

The lowered score means that even fewer investors will buy Spanish debt as organizations such as pension funds are mandated not to invest in assets with such low creditworthiness.

The bailout was meant to recapitalize the banking system and calm Europe's debt crisis. Instead, investors seem unnerved by the government taking on extra debt and have pushed Spanish bond yields - a measure of market jitters - higher all week.

The ratings agency said the Spanish government's ability to raise money on global markets was being hindered by high interest rates, a situation which had led it to accept eurogroup funds to recapitalize debt-burdened banks.

Some details of what the bailout might look like began to emerge Thursday. European officials are considering selling off banks' assets as part of the plan to prop up the Spanish banking sector, a spokesman for Competition Commissioner Joaquin Almunia said.

"Liquidation is always looked at," said Antoine Colombani. "We prefer to liquidate when it's cheaper for the taxpayer."

Since a weekend agreement to save the banks involves first lending the money to Spain, there are concerns that taxpayers are ultimately on the hook for the banks' bad decisions. Also, investors are worried that the deal raises Spain's debt and deficit levels.

Eurostat, the European statistics agency, said Wednesday that it was unclear how much the country's deficit would rise because it depended on how it lent the money on to the banks. Part of that decision will depend on the interest rate the banks are given; if it's too low, it could be considered more a gift than a loan and would count against the deficit.

Colombani said that under one plan being considered, the minimum for the rate would be 8.5 percent. Eurostat did not immediately respond to questions about whether that would be high enough to avoid having the loans count against deficit.

Part of Almunia's role is to help countries deal with troubled banks, and he will travel to Madrid on Friday to meet with Prime Minister Mariano Rajoy.

The Spanish government's erratic response to the crisis has irritated European Union leaders, Spain's leading newspaper El Pais said on its front page Thursday.

The paper said Rajoy has come under criticism in EU circles for presenting the bailout as a "light" measure and a victory for Spain and the euro, leading to an outcry for similar treatment by other austerity-saddled bailout countries such as Portugal and Ireland, which have had to struggle with heavy, externally imposed fiscal controls.

Speaking to the German parliament in Berlin on Thursday, Chancellor Angela Merkel insisted: "Spain is implementing the right reforms."

"The Spanish Prime Minister is doing this with great courage and great determination," she added.

Merkel again welcomed Spain's move to apply for European funds to recapitalize its banks. "We know banks must be reasonably capitalized to do keep the economy afloat, that is the lesson from 2008, 2009," she said.

"The faster Spain gets the application done, the better," she said.

Spain's benchmark stock index, the IBEX-35, opened 0.6 percent lower Thursday but recovered to trade 0.2 percent higher by early afternoon in Madrid, according to financial data provider FactSet.

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(AP) MILAN - Italian Premier Mario Monti saw nearly seven months of confidence-building by his government wiped out by Wednesday, when the country's borrowing rates in a bond auction skyrocketed back near levels last seen in December.

A sale of 12-month bonds, a warm-up for Thursday's weightier longer-term debt auction, demonstrated the speed with which market jitters spread from Spain following Madrid's weekend concession that its banks need a bailout.

Italy paid an interest rate of 3.972 percent up from 2.34 percent in a similar auction last month to borrow euro6.5 billion ($8.12 billion) in 12-month money from bond markets. Though demand was strong, the high rate suggests investors worry Italy may eventually need a rescue of its own.

Italian yields skyrocket on 12-month bond auction
World stocks struggle as crisis fears weigh
Watch: Euro crisis -- How to protect your money

"Contagion is back with a vengeance, and Italy is bearing the brunt of the fallout from Spain's request for external assistance," sovereign debt expert Nicholas Spiro said. Markets, he noted, are no longer differentiating fiscally-stronger Italy from Spain, "which is a sign that panic has set in."

Just before the debt sale, Monti urged lawmakers to speed the pace of reforms in a bid to persuade skeptical investors whom he referred to as "observers that don't nurture an innate sympathy for our country" that Italy is able to make the necessary economic sacrifices to escape the debt crisis.

Although Italy's deficit is relatively low, at 3.6 percent of GDP compared with Spain's 8.9 percent, the economy is not growing and overall debt is huge, at euro1.9 trillion ($2.4 trillion). To lower that debt, the economy needs to become more competitive.

To achieve that, Monti's technocratic government passed a package of tax hikes and spending cuts in December, and has been moving ahead with structural reforms. However, lobbies and politicians have been resisting the reforms, raising concern that political infighting might as so often in the past hinder the country's ability to fix its economy.

Public dissatisfaction with austerity measures has also been increasing. Trust in Monti has plunged from 70 percent when he took office in November to 40 percent last week, according to a survey of 1,000 people by the EMG polling agency for La7 private television. The June 7 and 8 poll has a margin of error of 3.1 percent.

Monti admitted that the country must complement its painful budget cuts with measures to stimulate economic growth.

"We need to have fiscal discipline and growth policies for fiscal policies to be sustainable in the long term," he said in Berlin, where he was to receive a leadership award.

Getting the economy growing again will be key to restoring confidence in the country. The recession is deepening the economy shrank a staggering 0.8 percent in the first quarter and households and industry are wary of spending.

At Rome's once-bustling Trionfale food market, just a few shoppers browsing the food stands Wednesday morning. Baker Roberta Massaroli said she had to let go the nine people who once worked for her.

"Have you looked around here?" said Mario Lorenziti, a shopper. "The market is half-empty. And if a market like this is half-empty it means that business in general is going to pieces."

Monti convened the leaders of the top political parties Wednesday night to urge them to accelerate parliament's adoption of key reforms and repeated the message in the lower house.

"The efforts that Italians have made and are making are difficult, but it would be even more difficult to accept, and the sense of alienation and frustration would be greater, if these forces were dictated" from outside, Monti told lawmakers earlier in the day, ahead of a vote on anti-corruption measures. The government survived three votes of confidence on the most controversial parts of the measures, which will be voted on Thursday.

Among the measures the government has had to compromise on is a labor reform package that was passed by parliament after being watered down, allowing judges to order companies to reinstate workers fired for economic reasons. Meanwhile, an important pension reform has become mired as the government and the state pension agency quibble over figures.

As Italy saw its bond yields rise this week amid concerns over Spain and the wider 17-country eurozone, the Austrian finance minister suggested Italy may also eventually need a bailout. She quickly backtracked on the remarks, however, after Monti and other European officials criticized them as inappropriate and counterproductive.

Monti firmly denied Italy will need outside assistance to keep up with payments on its debt, noting Wednesday that public finances are on much better footing than a few months ago. Italy is negotiating with both Switzerland and San Marino on deals to recoup revenues from money Italians have illegally stashed abroad. The deal with Switzerland alone could net up to euro40 billion, by some estimates.

He also made it clear that a broad European action plan is needed to avoid a spread of market panic from Spain to other countries like Italy, calling for concrete measures to be agreed at a June 28 EU summit.

He said that such measures as eurobonds - or jointly issued European debt to spread risk favored by France and Italy but opposed by Germany - don't need to be introduced this year, but should at least be in the early stages of planning.

Paola Barisani and Trisha Thomas in Rome contributed to this report.

(AP) MILAN - Italian yields on 12-month bonds skyrocketed to near December levels, wiping out the benefits of Premier Mario Monti's nearly seven-month government as Spanish contagion spreads.

Italy paid 3.972 percent interest rates - up from 2.34 percent last month - to sell 6.5 billion euro ($8.12 billion) in 12-month paper. The bond auction enjoyed strong demand.

The sale was a warm-up for Thursday's weightier longer-term paper auction.

Spain's decision over the weekend to seek a bailout for its banks has heightened pressure on Italy to speed its reforms and hold steady on austerity.

Monti earlier Wednesday urged parliament to accelerate passage of reforms to assure international markets that the eurozone's third largest economy will follow words with actions.

(AP) BRUSSELS - European stocks slipped Wednesday as concern that the continent's debt crisis is infecting the world economy offset hopes the U.S. might unveil more stimulus measures.

While stocks opened initially up in Europe, the bad news from the continent quickly set in. Investors are nervously awaiting Greek elections on Sunday, when a party that's threatening to renege on the country's bailout terms could come away the big winner. That might force the country out the euro.

Attention is also focused on Spain, where borrowing costs rose to euro-era highs on Tuesday, increasing concerns that it could need a bailout. The country agreed last weekend to take a rescue package to help it shore up its banks, but investors worry the government may have trouble repaying the loans.

The debt crisis is not just rattling financial markets, but also affecting households and businesses by creating uncertainty over the future of the economy. The latest report from Eurostat, the EU statistics agency, showed industrial production in April among the 17 countries that use the euro slipped 0.8 percent. Analysts noted that even that poor showing is worse than it seems because a cold Spring pushed up energy demand.

"Each day brings us closer to the Greek elections, an event that might be seen in years to come as the moment when the single European currency truly began to fall apart," said Chris Beauchamp, a market analyst with IG Index. "It all remains up in the air, and it is this uncertainty that is holding markets in check."

In Europe, stocks initially eked out small gains on the back of comments by a Federal Reserve official in support of more measures to stimulate the economy. But they were quickly erased.

France's CAC-40 dropped 0.5 percent to 3,033, while the DAX in Germany fell the same rate to 6,129. The FTSE index of leading British shares moved down 0.1 percent to 5,469.

The euro was volatile, but moved up 0.4 percent to $1.2550.

The U.S. was set to open lower, with Dow futures down 4 points at 12,510 and S&P 500 futures 2 points lower at 1,318.10..

Earlier in Asia, stocks had an equally choppy session.

Japan's Nikkei 225 index gained 0.6 percent to close at 8,587.84, after machinery orders rose 5.7 percent to the highest level in four years, Kyodo reported.

South Korea's Kospi swung temporarily into negative territory in early trading before closing 0.2 percent higher at 1,859.32. Hong Kong's Hang Seng also briefly dipped before rising 0.8 percent to 18,026.52.

Australia's S&P/ASX 200 fell 0.2 percent to 4,063.80. Benchmarks in New Zealand and Singapore fell but Taiwan's rose.

Mainland Chinese shares rose on hopes authorities would bring in more economy-boosting measures. The benchmark Shanghai Composite Index added 1.3 percent to 2,318.92 while the smaller Shenzhen Composite Index gained 1.8 percent to 959.11. Shares in biotechnology, insurance and power-related companies led the gains.

Amid concerns for the economy, which drives down energy demand, benchmark oil for July delivery fell 6 cents to $82.26 per barrel in electronic trading on the New York Mercantile Exchange.

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(AP) MADRID - Spain's benchmark borrowing rate hit its highest since the country joined the euro currency after Fitch credit ratings agency downgraded 18 domestic banks on Tuesday.

Spain's 10-year bond yield rose to hit 6.81 percent in late afternoon trading according to data provider FactSet, while stocks seesawed and began to dip just before markets closed, indicating that investors continued to find more questions than answers in Spain's decision to seek help for its ailing bank sector.

Spain agreed last weekend to take a European bailout for its banks, tapping into a $125 billion euro area bailout fund, but investors are worried it will not solve the country's problem as the government may have trouble paying the money back.

Fitch said in a statement that its downgrade of the banks was a result of a previous downgrade of the Spanish sovereign debt on June 7. Fitch said it had conducted stress tests, both on the Spanish banking sector as a whole and on individual banks, updating results from tests done in 2011.

The ratings agency said the weakness of the Spanish economy would continue to have a negative effect on business volumes "which, together with low interest rates, will place pressure on revenues."

There has been growing concern that an increasingly large amount of Spanish government debt is being bought by its banks as the country finds fewer and fewer international buyers for its bonds. As Spain's banks continue to struggle, weighed down by their toxic property loans and assets, the government is finding it increasingly harder to sell its bonds.

One hope among eurozone politicians is that the euro100bn loan facility will help shore up Spanish banks' balance sheets, thereby giving them back the ability to loan out money to businesses and individuals and also buy more government debt. However, Spain is in danger of being trapped in a vicious debt circle. The euro100 billion loan facility will increase the Spanish government's debt load and it will have to find more buyers for its bonds which will send borrowing costs even higher. This could push Spain's government to ask for a bailout of its own.

The rescue package for Spain's crippled lenders was announced Saturday by finance ministers from the 17-country euro area, but the exact amount the country's banks will receive has not yet been published.

It is not yet clear where the euro area bailout loans will come from. If the money comes from the existing eurozone rescue fund, the European Financial Stability Facility, its repayments will have the same priority as the all the other private bond investors. However, if the funds are to come from the new bailout facility, the European Stability Mechanism, its bond repayments will be given a higher priority than everyone else's which could mean that other debt would be less likely to be paid off. That could make bondholders less willing to buy Spain's debt or demand a higher interest rate to compensate for the added risk of losses.

Spain will wait for the results of two independent audits of the country's banking industry before saying how much of the euro100 billion it will tap. The bailout loans will be paid into the Spanish government's Fund for Orderly Bank Restructuring (FROB), which would then use the money to strengthen the country's teetering banks.

In a report released late last week, the International Monetary Fund estimated Spain needs around euro40 billion to prop up banks hurting from an unprecedented real estate boom that went bust.

Investors also want to know whether Spain will ask for a safety margin of extra money to cushion itself against a further shock, such as a deterioration in the economy.

While Spain's bailout is designed to prop up its banks, investors are also worried that the Spanish government might eventually be forced into asking for a bailout to help it pay its way. Recession-hit Spain, which has the eurozone's fourth-largest economy with unemployment of nearly 25 percent, may be too big for the eurozone's rescue funds to handle.

Spain is also getting punished because of fears Greek elections on Sunday will hand a victory to the radical left-wing Syriza party, campaigning on a pledge to refuse to comply with terms of that country's bailout package. This could eventually push Greece out of the euro, further destabilizing the currency group.

"The idea of the Spanish bailout was to calm the market in case the Greek elections do not turn out as the EU would like," said Gary Jenkins, director of Swordfish Research Ltd.

"However the end result was to create more volatility and create more concern."

Once it became clear that the rescue money for Spain's banks would not solve that country's problems, investors have turned their attention to Italy, whose economy is larger than Spain's.

Italy didn't suffer through a real estate bust, so its banks are in better shape. But like nearly half of the countries in the euro, its economy is shrinking, making it difficult for the government to chip away at a mountain of debt. Italian bond yields also rose to worrying highs on Tuesday, hitting 6.02 percent, its highest level since January.

"Although Italian banks are relatively sound compared to the Spanish counterparts, without the heavy weight of toxic real estate bubble and are much less exposed to the government bonds, the real question is whether the country can grow itself out of the recession," said Anita Paluch of Gekko Global Markets.

(AP) ATHENS, Greece - The head of Greece's radical left-wing Syriza party, who has a strong chance of winning Greece's critical weekend elections, insisted on Tuesday that the continued implementation of the country's bailout conditions would be catastrophic.

Alexis Tsipras, whose party came a surprise second in inconclusive May 6 elections, said he would stick to his pledge to tear up Greece's bailout deal, saying the austerity the country has been forced to impose in return for billions of euros in rescue loans was leading Greece towards collapse.

If Greece reneges on its pledges to reform its economy, the other European countries and International Monetary Fund who have extended it billions of euros in rescue loans could pull the plug on the funding, forcing the country out of Europe's joint currency.

But Tsipras said he hoped to convince European leaders that such a scenario would pose a danger to the continued existence of the 17-nation joint currency itself.

"If one of the 17 countries is brought to collapse ... the fire will become unquenchable and will not be limited to Greece and the southern countries ... it will break up the eurozone and that will not be in anybody's interests," he said during a news conference.

No party won enough votes on May 6 to form a government, and coalition talks collapsed after 10 days, leading the country to hold a repeat ballot on June 17. Opinion polls published before a two week pre-election ban showed Syriza neck-and-neck with the conservative New Democracy party, which came first on May 6.

However, they indicated that again no party would win enough parliamentary seats to form a government. This means that unless parties can agree on a coalition government, a third election will have to be held.

Tsipras insisted that a government must be formed fast, without the drawn-out negotiations that occurred in May.

"The country must have a government on the 18th," he said. "Not on the 19th, not on the 20th or the 21st."

Burdened by a massive debt and huge budget deficit, Greece has been dependent on the EU-IMF rescue loans since May 2010, when it became locked out of the international bond market by sky-high interest rates.

The country has continued raising small amounts through treasury bill sales. On Tuesday, it raised 1.625 billion euro ($2 billion) in an auction of 26-week treasury bills, but at a relatively hefty interest rate that rose from a similar debt sale last month.

Tuesday's auction saw the yield increase to 4.73 percent from 4.69 percent in the last such auction on May 8. Demand was 2.14 times the amount on offer, weaker than in May, when it was 2.6 times the offer.

MADRID (AP) - Investors continue to find more questions than answers in Spain's decision to seek help for its ailing bank sector and tap a 100 billion euro ($125 billion) euro area bailout fund.

The country's borrowing costs rose sharply Tuesday for the second day in a row while stocks seesawed as markets fretted about whether the new 100 billion euro lifeline is enough to contain the 17-country single currency union's debt crisis and whether private investors in Spain might not see their debts paid off.

"EU leaders continue to give their best impression of blind men groping around in the dark for a solution to the debt problems afflicting Europe," said Michael Hewson, senior market analyst with CMC Markets.

Spain bailout offers calm before more storm
Investors give thumbs down to Spanish bank rescue

The interest rate - or yield - on Spain's 10-year bond rose to 6.63 percent, close to the 7 percent level that forced Greece, Ireland and Portugal to ask for more rescues of their public finances, according to financial data provider FactSet.

Stocks slipped early on Madrid's IBEX-35 index, then turned to positive territory were up 0.9 percent in midday trading.

The bank rescue package was announced Saturday by finance ministers from the 17-country euro area, but no amount has been set for how much Spain's banks will receive. Investors are also becoming increasingly worried that private bondholders could be placed lower in the pecking order of debt repayments if money from a new eurozone rescue fund is used in the bailout.

It is not yet clear where the euro area bailout loans will come from. If the money comes from the existing eurozone rescue fund, the European Financial Stability Facility, its repayments will have the same priority as the all the other private bond investors. However, if the funds are to come from the new bailout facility, the European Stability Mechanism, its bond repayments will be given a higher priority than everyone else's - which could mean that other debt would be less likely to be paid off. That could make bondholders less willing to buy Spain's debt or demand a higher interest rate to compensate for the added risk of losses.

Spain will wait for the results of two independent audits of the country's banking industry before saying how much of the 100 billion euro it will tap. The bailout loans will be paid into the Spanish government's Fund for Orderly Bank Restructuring (FROB), which would then use the money to strengthen the country's teetering banks.

In a report released late last week, the International Monetary Fund estimated Spain needs around 40 billion euro to prop up banks hurting from an unprecedented real estate boom that went bust.

Investors also want to know whether Spain will ask for a safety margin of extra money to cushion itself against further shocks, such as a deterioration in the economy.

While Spain's bailout is designed to prop up its banks, investors are also worried that the Spanish government might eventually be forced into asking for a bailout to help it pay its way. Recession-hit Spain, which has the eurozone's fourth-largest economy with unemployment of nearly 25 percent, may be too big for the eurozone's rescue funds to handle.

Spain is also getting punished because of fears Greek elections on Sunday will hand a victory to the radical left-wing Syriza party, campaigning on a pledge to refuse to comply with terms of that country's bailout package. This could eventually push Greece out of the euro, further destabilizing the currency group.

"The idea of the Spanish bailout was to calm the market in case the Greek elections do not turn out as the EU would like," said Gary Jenkins, director of Swordfish Research Ltd.

"However the end result was to create more volatility and create more concern."

Once it became clear that the rescue money for Spain's banks would not solve that country's problems, investors have turned their attention to Italy, whose economy is larger than Spain's. Italy didn't suffer through a real estate bust, so its banks are in better shape. But like nearly half of the countries in the euro, its economy is shrinking, making it difficult for the government to chip away at a mountain of debt

"Although Italian banks are relatively sound compared to the Spanish counterparts, without the heavy weight of toxic real estate bubble and are much less exposed to the government bonds, the real question is whether the country can grow itself out of the recession," said Anita Paluch of Gekko Global Markets.

(AP) SINGAPORE - Oil touched an eight-month low near $81 a barrel Tuesday in Asia amid concern Spain's bank bailout won't be enough to stem Europe's debt crisis.

Benchmark oil for July delivery was down $1.15 to $81.55 per barrel at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. Earlier on Tuesday, oil dropped to $81.07, the lowest since October. The contract fell $1.40 to settle at $82.70 in New York on Monday.

In London, Brent crude for July delivery was down 98 cents at $97.02 per barrel on the ICE Futures exchange.

Crude jumped Monday after the 17 countries that use the euro common currency pledged to lend Spain $125 billion to rescue its faltering banks. However, attention soon turned to the Greek election this weekend, the outcome of which could determine if Greece stays in the euro.

"The initial bullish euphoria surrounding the Spanish bank bailout plan quickly wore off," energy trader and consultant Ritterbusch and Associates said in a report.

Greece will hold an election Sunday in a bid to form a government after political leaders failed to do so after a vote last month.

Oil has plunged about 24 percent from $106 since early last month amid signs of slowing economic growth in the U.S., China and Europe.

Traders will also closely watch a quarterly meeting of the Organization of Petroleum Exporting Countries on Thursday. Some members of the cartel have suggested recently that OPEC is producing too much crude, and the group could decide to cut supplies to help boost prices.

In other energy trading, heating oil was down 1.9 cents at $2.62 per gallon while gasoline futures fell 2.2 cents to $2.63 per gallon. Natural gas dropped 3.0 cents to $2.19 per 1,000 cubic feet.

(AP) ATHENS, Greece - Greece's debt management agency says the country has raised 1.625 billion euro ($2 billion) in an auction of 26-week treasury bills, but at a relatively hefty interest rate that rose from a similar debt sale last month.

Tuesday's auction saw the yield increase to 4.73 percent from 4.69 percent in the last such auction on May 8. Demand was 2.14 times the amount on offer, weaker than in May, when it was 2.6 times the offer.

Greece has been locked out of the long-term international bond market for the past two years by sky-high interest rates demanded for its bonds. It has continued with short-term bill sales to keep a presence in the market.

The country has been relying on international rescue loans from the EU and IMF since May 2010.

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(CBS/AP) NEW YORK - Investors aren't sold on a rescue of Spanish banks.

Stocks fell on Wall Street, an early rally faded on European stock exchanges, and borrowing costs for Spain crept higher on the bond market Monday - all expressions of doubt about the latest fix for a debt crisis in Europe.
   
Investors were uncertain whether the rescue package would be enough to save the Spanish banks and whether the terms of the loan, still undisclosed, would deliver another blow to the recession-hobbled Spanish economy.

"People want to see clarity," said Stephen Carl, head of equity trading at The Williams Capital Group, an investment bank in New York. "No one likes a situation that's to be determined."

Spanish bank bailout could cost $125 billion
Will Europe tip the world into recession?
Fitch downgrades two Spanish banks

The Dow Jones industrial average opened up almost 100 points but sank all day and closed down 143 points at 12,411.23. The Standard & Poor's 500 index fell 17 points to 1,309, and the Nasdaq composite declined 49 points to 2,810.
   
European countries committed over the weekend to lend Spain up to $125 billion to distribute to its banks, which have been driven almost to insolvency from a bust in real estate prices four years ago.
   
Spain became the fourth European nation to seek a rescue, after Greece, Portugal and Ireland.
   
Market strategists had hoped that the rescue in Spain would at least temporarily ease fear that debt problems in Europe will explode into a world financial crisis and hurt the fragile global economy.

Those strategists had predicted a rally in stocks after the deal was announced. But investor relief was short-lived.

Heightening these concerns, Fitch Ratings on Monday downgraded Spain's two largest international banks Banco Santander and Banco Bilbao Vizcaya Argentaria (BBVA) from A to BBB+.

The credit rating agency said the reasons for the downgrade were primarily because Spanish sovereign debt ratings had been downgraded to BBB- from A- on June 7 and also due to forecasts that Spain's faltering economy would remain in recession throughout this year and also in 2013 "compared to the previous expectation that the economy would benefit from a mild recovery in 2013."

France's main stock index closed down 0.3 percent, and Germany's rose just 0.2 percent. Both indexes were up more than 2 percent earlier in the day. Spain's benchmark stock index shot higher by 6 percent but closed down 0.5 percent.
   
"The Spanish deal is a temporary fix," said Jim Herrick, director of equity trading at Baird & Co.
   
More alarming, the yield on Spanish 10-year bonds climbed 0.29 percentage point to 6.47 percent, suggesting the bond market is losing confidence in Spain's finances. The yield had fallen earlier.
   
Initial investor optimism was overshadowed by concerns over the terms of the deal, which were still being worked out.
   
Finance ministers of the 17 countries that use the euro currency said they would make the $120 billion available to the Spanish government to distribute to its banks.
   
Bond investors were worried that the debt from the rescue package would put additional strain on Spain's finances. The European Union made clear Monday that there would be some strings attached besides interest.
   
"When people lend money, they never do it for free. They want to know what is done with the money," said Joaquin Almunia, the European Competition Commissioner.
   
Other events in Europe also weighed on the markets. Investors are nervously awaiting an election this weekend in Greece that will help determine whether that country is forced out of the euro group.
   
And Italy said its economy contracted by 0.8 percent in the first three months of the year, the worst showing in three years. The Italian government is struggling to fend off the perception that Italy will be next to need a rescue.
   
The yield on the Italian 10-year government bond crept higher, too - by 0.29 percent from Friday to 5.84 percent.
   
"This deal is not the be-all and end-all that will solve Spain's or Europe's other problems," said Ryan Larson, head of equity trading at RBC Global Asset Management.
   
The price of oil reversed an earlier gain, falling 65 cents to $83.46 a barrel. Investors bought safer investments like U.S. Treasury notes, sending the yield on the benchmark 10-year note down to 1.60 percent from 1.64 percent Friday.
   
Also adding to market worries is China's economic slowdown. A large steelmaker in China, Baoshan Iron & Steel, said it lowered steel prices as demand from makers of appliances and cars slowed.
   
"China is a big piece of the global economic puzzle," Herrick said. "Any piece of news that comes out from there will be closely scrutinized."
   

The downbeat mood Monday took some sheen off the market's performance last week, when stocks recorded their strongest week of the year. News that businesses were restocking their inventories faster than expected pushed stocks higher Friday, giving the Dow Jones industrial average its fourth straight day of gains.