Spain on Thursday plans to sell as much as 4 billion euros ($5.5 billion) of bonds, two days after Italy’s borrowing costs surged at a bill auction and as Greece’s slide toward a possible default roils global markets.

“Lower demand is likely to push up rates as systemic risk dominates the markets,” said Fadi Zaher, a fixed-income strategist at Barclays Wealth in London. “The European Central Bank credit card is running out, the involvement of private investors in Greece remains hanging in the air and euro-zone leaders are showing no unity.”

The Treasury is selling bonds maturing in 2019 and 2020 as the premium investors demand to buy Spain’s debt rather than German equivalents narrowed to 348 basis points yesterday from 359 basis points on Sept. 13. The ECB intervened on the secondary markets on Aug. 8 to stem surging Spanish and Italian borrowing costs. The yield on Spain’s benchmark 10-year bond reached a 6.3 percent euro-era high on July 18.

Finance Minister Elena Salgado said yesterday that Spain’s interest-cost burden is one of the lowest in Europe. Prime Minister Jose Luis Rodriguez Zapatero is struggling to cut a budget deficit that’s three times the European Union limit and dodge a bailout.

Divisions among European leaders on aiding Greece and helping Spain and Italy avoid being engulfed by the debt crisis are sapping demand for bonds in the region. Greek Prime Minister George Papandreou’s latest offer of increased austerity is failing to convince investors the country can meet its fiscal targets and avoid a default.

Advancing Yields

Italy’s Treasury sold 3.9 billion euros of five-year bonds on Sept. 13, with yields rising to 5.6 percent compared with 4.93 percent when similar-maturity securities were sold on July 14. The Treasury fell short of its maximum target of 7 billion euros as demand was 1.28 times the amount offered, down from 1.93 times at the last sale.

The yield on Greece’s two-year note surged to a record 77 percent yesterday, while the cost of insuring Greek, French, Spanish and Italian debt against a default surged. The yield on Spain’s benchmark 10-year bond climbed to 5.35 percent yesterday compared with 5.08 percent the day after the ECB started buying Spanish debt.

Spanish banks’ borrowings from the ECB surged to 69.9 billion euros in August, an 11-month high, from 52.05 billion euros in July, the Bank of Spain said yesterday. Divisions among European governments over how to tackle the region’s debt crisis have helped drive up banks’ borrowing costs, narrowing their access to the wholesale debt markets they need to fund their business.

Downside Risks

Spain’s credit rating faces risks “on the downside” as growth slows and regional governments fall behind schedule on deficit-reduction targets, Fitch Ratings Director Douglas Renwick said in a telephone interview on Tuesday.

Fitch rates Spain AA+ with a “negative” outlook, and Renwick said weaker growth, failure to meet deficit targets or larger-than-forecast use of public funds to rescue banks could be “clear triggers for the rating.” Moody’s Investors Service has an Aa2 rating on Spain and Standard & Poor’s rates it AA.

Zapatero said yesterday that market tension may affect the government’s growth forecast. Still, he expects quarterly growth rates in the third and fourth quarters to be “similar” to the 0.2 percent expansion in the three months through June.