Spain sold €5.64 billion of bills, more than the maximum target, and its borrowing costs dropped as the European Central Bank prepared to start offering banks unlimited three-year loans later today.

The Madrid-based treasury said it sold three-month debt at an average yield of 1.735 per cent, compared with 5.11 per cent at an auction on November 22nd.

It sold six-month paper at 2.435 per cent, down from 5.227 per cent last month.

Demand for the three-month securities was 2.86 times the amount sold, compared with 2.85 last month, and the bid-to-cover for the longer-dated paper was 4.06 times compared with 4.92 previously.

Spain aimed to sell as much as €4.5 billion. The yield on Spain's 10-year benchmark bond fell to 5.112 per cent after the sale from 5.184 per cent earlier today.

That compares with a euro-era high of 6.78 per cent on November 17th.

Mariano Rajoy, due to be voted in as Spanish prime minister by parliament today, said yesterday that all components of public spending barring pensions may be reduced as part of his plan to regain investor confidence and recover Spain's AAA rating.

The last time Spain auctioned three-month debt, on November 22nd, its borrowing costs doubled as it had to pay more than Greece and Portugal, and it sold six-month bills at the highest yield since 2004.

The ECB will today offer banks unlimited cash for three years at its benchmark rate of 1 percent to encourage lending and stave off a credit crunch. It has also loosened rules on the collateral banks can use so that they can borrow more.

Bloomberg