The yield on Spanish 10-year bonds rose Monday to a prohibitive 7.49 percent amid fears that nothing short of massive intervention by the European Central Bank can relieve the pressure on Madrid's sovereign debt.
Spain's risk premium, the extra return investors demand on Spanish bonds compared with equivalent, safe-haven German debt, reached 640 points on Monday before dropping back to a still-record 632 points by the close of trading.
The Madrid stock market's benchmark IBEX 35 index dipped more than 5 percent before recovering to end the day down 1.1 percent, helped by Spanish regulators' decision to revive a ban on short-selling that had been lifted in February.
The announcement boosted shares of Spain's troubled banking sector.
Traders in Madrid were also encouraged by word that European Commission President Jose Manuel Durao Barroso and ECB chief Mario Draghi held talks Monday on additional steps the European Union could take to address the crisis.
The ECB stopped buying Spanish debt in February and has been unresponsive to pleas for action to ease the pressure on Spain in financial markets.
While ruling out any need for a broader rescue of the Iberian nation, Spanish Economy Minister Luis de Guindos called Monday for moves to combat "the irrationality in the markets."
Easing the concerns of markets "is beyond the capacity of (individual) governments" and requires effort from international institutions, he said.
Observers say investors are worried about Spain's ability to meet EU-mandated targets for deficit reduction given the financial weakness of Spanish regions such as Valencia, which recently sought help from Madrid.
Even the Eurogroup's approval of up to 100 billion euros ($122 billion) in aid for struggling Spanish banks failed to reassure the markets, according to analysts at Self Bank.
The ECB "has to take some measure, because it cannot be that some in the eurozone finance themselves at 7 percent and others at 1 percent," Juan Esquer, a partner with GBS Finanzas, S.A., said Monday.
Spain's economy, already in recession for the second time in three years, will contract by another 0.5 percent in 2013, Finance Minister Cristobal Montoro said last Friday.
Prime Minister Mariano Rajoy's administration also expects unemployment to remain virtually unchanged in 2013 at 24.3 percent.