Spain has sold €4.88 billion of treasury bills in its first auction since being downgraded by Standard & Poor's last week.

The Treasury had aimed to raise between €4 billion and €5 billion from the sale, a prelude to what has been dubbed a "litmus test" auction on Thursday of bonds with maturities of up to 10 years.

Yields on the 12- and 18-month paper were 2.049 per cent and 2.399 per cent respectively, slightly lower than expected and little more than half of what was paid to place the same maturities in December.

That sale took place before the European Central Bank fed demand for shorter-term euro zone debt with a flood of cheap three-year money.

Credit agency Standard & Poor's cut Spain's rating by two notches on Friday as part of a wave of downgrades of euro zone sovereign debt.

Spain’s 10-year bond yields rose after the sale to 5.101 per cent, from 5.085 per cent before the auction.

While the cut was priced in by markets, Spain's public finances remain under the market microscope and demand for its bonds that extend beyond the duration of the ECB money is uncertain.

"The biggest driver behind the fall in yields is the ECB liquidity actions. But the 10-year auction will provide a proper litmus test for Spanish debt," said David Schnautz, analyst at Commerzbank.

Mr Schnautz said market sentiment had also been boosted since then by action by the new government elected in November to tackle the budget deficit after a steep overshoot in 2011, and by its plan to raise taxes despite pre-election promises not to.

Traders said the European Central Bank took action yesterday by buying bonds issued by Italy - the other major euro zone economy at the sharp end of the debt crisis - as well as Spain.

That offset pressure from the salvo of S&P downgrades, though the rising risk of a disorderly default in Greece weighed on markets.

On Thursday, Spain will look to place €3.5 to €4.5 billion of paper due in 2016, 2019 and 2022, the latter two maturities well beyond the duration of the ECB loans.

Prior to today's bill auction, analysts said they expected the ten-year auction yield at about 5.5 per cent. The last time Spain sold 10-year paper was on December 15th, when it paid 5.545 per cent.

It also sold 12-month and 18-month paper last month the yields were 4.050 per cent and 4.226 per cent.