Italy's three-year borrowing costs spiked to 5.3 per cent at auction today as the the euro zone's debt crisis intensifies after an aid deal for Spanish banks failed to reassure investors.

With its own economic reforms stalling as it battles market speculation that it too may eventually need a bailout, Italy offered up to €4.5 billion in bonds at auction, a day after a three-notch downgrade of Spain's debt by Moody's overnight.

The yield on a three-year bond sold for €3 billion rose 1.4 percentage points from a previous auction a month ago, hitting a high since December.

Analysts had expected the auction to be helped by its smaller-than-average size and the fact that it was likely to be the last tranche of the March 2015 bond sold before Italy launches a new three-year benchmark.

Uncertainty over the outcome of the Greek election on Sunday is contributing to market unease.

The lack of details around the bank aid deal for Spain agreed last weekend has also worried investors.

Bloomberg, Reuters