European Crisis Live: Spanish Rescue Rally Stalls as Investors Question €100bn Deal

1540 BST: To lose on Central Bank Governor could be seen as an accident ...

... to lose two within a month seems like carelessness. Bank of Spain Francisco Javier Ariztegui has resigned, according to media reports, less than a week after Miguel Angel Fernandez Ordonez stepped down from the position one month before his term was to expire. Luis Maria Minde will be sworn in as new BoS Governor today.

1515 BST: Blue-chip Italian shares halted

Italy's FTSE MIB has collapsed after a neary 2 percent opening gain to a 150 point loss. Intesa Sanpaolo, the countr's second-biggest bank, had its shares halting during trading after falling 3.4 percent. Telelcom Italia and Fiat shares have also been temporarily suspended from trading.

1455 BST: Spanish default costs rising

Five-year credit default swap prices on Spanish debt are trading at 595 basis points, or €595,000 each year for five years against €10m in Spanish government debt. That's 11 basis points higher than the Friday - pre bailout - closing price.

1430 BST: Solid North American Open

US Stocks gain at the bell, with the Dow Jones Industrial Average up 61.61 points, or .049 percent, to 12,615.81 in immediate trading. Tech-heaving NASDAQ leaders advancers with 0.85 precent pop to 2,882.71.

Toronto's TSX Composite gains around 0.26 percent to 11,530.09.

1415 BST: Cyrpus makes five

Finance Minister Vassos Shiarly says his nation may seek emergency EU aid before the end of the month - the day before it takes over the 6-month rotating EU Presidency. Cyprus represents around 0.2 percent of total Eurozone GDP and has around €2.5bn in short-term debt maturing in 2013.

1240 BST: Buyer's remorse ....

Spain's benchmark 10 year bonds are creeping closer to 6.5 percent at midday, a 45 basis point rise from the low of the session.

IFR, the Reuters-owned specialist financial publication, wrote this morning that investors may be concerned about the triggering of subordination (see below) for existing holders of Spanish government debt if, as expected, the loan agreed with the government is supplied by the permanent bailout fund, the ESM.

If so, this could also trigger what's known as a "credit event" in the market for credit default swaps, forcing sellers of default protection to pay holders the full value of their bonds as a result of the subordination (in an extreme scenario).

1230 BST: Turning red ...

Italy's benchmark FTSE MIB index has turned red for the day as investors begin to question the strength of the Spanish "firewall" and ask whether Italy may be next in line for financial assistance. Italy's 10-year bond yields are also on the rise, trading north of 6 percent this morning after confirmation of its fourth recession in a decade. Italy, the Eurozone's third largest economy, is also the third largest bond market in the world, with more than €2tn in outstanding debt.

Earlier today, Industry Minister Corrado Passera brushed off the suggestion his country may be next in line for EU assistance: "Italy has done what was necessary to save itself in past months" .

1215 BST: Germany wins on financial penalties ...

So says "Private Eye". Anyway, here's a fantastic Euro 2012/European Debt Crisis "Twitpic" making the rounds this morning: https://twitter.com/WJames_Reuters/status/212138940705153025/photo/1

1145 BST: Yields on the rise

Spain's benchmark government bond yields are rising again this morning - albeit in thin trading - as investors continue to question the effectiveness of the agreed bailout. 10-year bonds are now trading at 6.27 percent, around 20 basis points higher than during the early portion of the session. The extra yield, or spread, investors demand to hold Spanish bonds instead of German bunds has also increased 2 basis points to 491 basis points.

1005 BST: Settling in ...

European stocks are holding onto most of the early gains from this morning's post-bailout rally, although the FTSE 100 is only up around 1.3 precent and lags the near 2 percent gains we're seeing in Germany and France. The Europe-wide FTSE Eurofirst 300 is just a couple of points away from 1,000, a level it hasn't breached in nearly a month, after rising 1.65 percent to 998.43.

0900 BST: Italy shrinks

Italian GDP is confirmed to have contracted 0.8 percent in the first three months of this year, while the year-on-year contraction was marginally wider at -1.4 precent, according to the National Statistics Office.

0855 BST: What about us?

An interesting dimension to the Spanish bailout (I think most journalists are enjoying going "off message" in using this term) is the impact it may have on both Greece and Ireland.

The former, of course, faces critical elections this weekend in which the conditions on previous EU bailouts are central to the debate. Syriza, the left-leaning political party which promises to nullify terms of the existing EU agreements, may look to the deal cut by Spain (low interest rate, no conditions placed on the government beyond bank restructuring, no subordination) and feel its negotiating position may now be stronger than it was last week.

If the EU is easing its stance on austerity (given that it didn't demand further public spending cuts alongside the Spanish loan commitment, even though Spain has snubbed demands for faster budget deficit reduction) Syriza could rightly campaign on the promise of arranging a new, slacker agreement with EU creditors. This tact could counter the principal electoral allegation of Syriza's opponents (a vote for Alexis Tsipras is a vote to leave the Euro) and possibly help deliver a parliamentary majority for the charismatic leader.

Ireland, which has long argued for a reduction in its own EU/IMF bailout, may also feel slighted by the easy conditions placed on Spain, particularly given its unwavering commitment to painful austerity measures and deficit reduction in the face of a contracting economy. However, Ireland's insistence on maintaining an ultra-competitive corporate tax rate of 12.5 percent may make renegotiation difficult.

0835 BST: Bond market relief ... and quite a few questions

We're seeing an immediate - if not dramatic - easing in bond market pressures for Spanish (and indeed Italian) debt this morning although not nearly to the degree you might expect given the sharp rise in European share prices. Research this morning suggests this is connected to the lack of detail in Spain's request for funds over the weekend.

At present, it's unclear as to whether existing holders of Spanish government bonds will rank "parri passu" (equal to) or below the new €100bn in loans that are expected to be given to the Spanish government. Under terms of the temporary bailout fund, the EFSF, bondholders are given equal rank to new loans (in other words, there's no "subordination"). Under terms of the permanent bailout fund, the ESM, bondholders are pushed further down the queue (except in the case of Greece, Ireland and Portugal). Subordination is key in helping investors evaluate the risk premium they need to apply to the debt in the marketplace. The deeper the subordination, the higher the premium.

Markets seem to be assuming rules on subordination will apply on EFSF terms, given that the ESM has yet to receive full legal authority from its contributing members (more on that later) and are pricing Spanish debt accordingly: prices last seen show Spain's benchmark 10-year government bonds trading at 6.05 percent, a significant improvement from "pre-bailout" levels. Credit default swap costs on Spain's debt are also improving, falling 22 basis points, or €22,000, to 565 basis points (ie €565,000 each year for five years insures €10m Spanish government bonds from default).

Lending capacity is also a potential issue. To date, the EFSF has committed around €213.3bn in emergency loans. Once (if?) full authority is transferred to the ESM, lending capacity will rise to €700bn. Spain's full request (we'll know the amount after results of the 21 June audit of the banking system) will likely take committed loans to €313bn, leaving just under €400bn remaining, an amount that would barely cover Spain's *minimum* financing needs out to 2014 (€370bn).

0805 BST: Solid gains

Investors are following Asia's lead and lifting European markets across the board: London's FTSE 100 added 1.8 percent in the opening minutes of trading this morning while traders built similar gains in France (2 percent) Germany (2.1 percent) and Italy (2.1 precent). Spain's IBEX 35 looks the early standout gainer, adding 5.3 percent.

More broadly, the FTSE Eurofirst 300 is up 1.1 percent to 993.44 in the opening minutes after the bell while banking stocks are 3.1 percent higher (Euro Stoxx Bank Index).

0750 BST: Good Morning!

Global stock markets and the European single currency rose sharply in overnight trading in Asia following Spain's formal request for emergency financial add to help support its banking system. The €100bn package, while lacking in detail, seems solid enough to support investor optimism at least for the moment, as critical elections in Greece this week may increase concern that the Eurozone's future remains uncertain.

Asia stocks, which had the biggest single-day rise in four months, were given a further boost by surprisingly strong export data from China, which showed a 15.3 percent surge in overseas sales last month - well ahead of analysts' estimates - and a sharp 12.7 percent uptick in imports for the world's fastest-growing economy. The single currency hit a two-week high of 1.2641 in overnight trading.

European shares are set to open firmly, with financial bookmakers calling for a 89 point rise in the FTSE 100, a 157 point rise for the DAX and a 67 point improvement for France's CAC-40.

In the bond market, we're seeing an immediate fall in Spain's 10-year bond yields, which are currently trading at 6.09 percent (from around 6.40 percent prior to the bailout announcement). German bunds yields have rise to 1.41 percent as investors move cautiously towards riskier assets around the Eurozone.

Some of the optimism may be tempered by news this morning that Moody's Investors Service has warned that develops in both Spain and Greece could precipitate further sovereign debt downgrades. This is important to the Spanish bailout because Spanish government bonds are currently rated A3 by Moody's - the highest ranking of the three major agencies. If Spain's debt rating is cut by Moody's, its government bonds will be less valuable as borrowing collateral at the European Central Bank, placing even more stress on the beleaguered banking system which relies heavily on ECB funding for its liquidity.