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Spain Banking Sector Shaken By Report Of Bank Run

Prime Minister Mariano Rajoy warned this week that the country risked being frozen out of capital markets because of the sky-high interest rates, or yields, it would have to pay to maintain its debt.

After Spanish markets closed Thursday, Moody's announced that it had downgraded the credit ratings of four of Spain's 17 semiautonomous regions that function much like U.S. states. Overspending and debt accumulated by these regional governments has added to the country's economic problems.

Spain's government on Thursday approved new budget-cutting plans for 16 of the regions, and the country's National Statistics Institute confirmed that Spain went into recession again for the second time in three years. Gross domestic product declined 0.3 percent in the first quarter that ended in March.

___

AP Business Writer Alan Clendenning contributed from Madrid.

Copyright 2011 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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