Spain's listed banks are continuing to stock up on sovereign debt as they chase high returns while keeping the state afloat, financial sources say - a strategy that could backfire if the country fails to fix its funding problems.

The trend marks a setback for EU policymakers' attempts to cut the negative feedback loop between sovereign and bank sector risks, but it seems likely to pay the lenders handsome rewards if Spain finally seeks external assistance to manage its debt.

Penned at the front line of the euro zone debt crisis, Madrid is under pressure from investors to request financial assistance and trigger a bond-buying programme by the European Central Bank and the region's rescue funds.

The country already sought in June an up-to-€100-billion credit line for its weaker banks, crippled by the collapse of a decade-long property boom in 2008.

The likely main recipients of this aid - small savings banks and state-rescued lenders such as Bankia - have stopped buying sovereign paper in recent months and some have cut their holdings, the sources said.

"The intervened banks have not been buying Spanish debt, but the other banks are buying like there is no tomorrow," said one major market maker for Spanish sovereign debt who spoke on condition of anonymity.

A small group comprising Spain's main listed banks and topped by the euro zone's biggest lender, Santander, were buying the debt and helping to keep the state solvent, said a sovereign debt broker who also declined to be named.

The Bank of Spain, wary of any direct recycling of bank bailout funds, said state-controlled banks had stopped buying sovereign debt.

"I want to make it very clear that no bank controlled by the (state-backed bank fund) FROB has been or is buying Spanish debt right now," communications director Victor Marquez said. He declined to comment on other lenders' debt market strategies.

Oil prices fell to a six-week low today, as worries about the perilous state of Spain's finances returned to the fore, snuffing out gains after Japan's central bank became the latest to further open its monetary taps.

"There is no specific news, but there are rumours that Spain could seek a bailout, which slammed the euro a bit, and that's fed into oil," said Rob Montefusco at Sucden Financial.

Brent November crude fell 80 cents to $111.23 a barrel today and touched its lowest since August 8th.

Reuters