Worker observes as a power shovel pulls down a family house for construction new buildings in Aranguren, next to Pamplona, northern Spain, Monday November 21 , 2011. Spain has suffered a long economic crisis with more than five millions unemployed, accentuated by excessive construction of buildings. (Photo: AP)

MADRID, Spain

Spain’s borrowing costs rose above those of Greece and Portugal yesterday in an auction of short-term debt, suggesting investors remain cautious about this country’s financial future despite a convincing electoral win this week by conservatives bent on deficit-cutting austerity.

The treasury sold ¤2.98 billion (US$4 billion, $344.6 billion ) in three- and six-month bills, which was roughly the agency’s target. But the average interest rate on the three-month bills jumped to 5.1 per cent from 2.3 per cent in the last such auction in October, and to 5.2 per cent on the 6-month bills, compared with 3.3 per cent last time.

Demand was nevertheless good, with bids almost three times the amount offered for the three-month bills, and nearly five for the six-month bills.

Still, though the bonds are not strictly comparable because Greece and Portugal are receiving EU and International Monetary Fund bailouts that help keep rates down, the Spanish yields on the three-month bonds compare to 4.1 per cent for Greece and 4.9 per cent for Portugal in auctions on November 16.

Last week, Spain had to offer an average interest rate of nearly seven per cent on 10-year bonds at an auction, a euro-era record. An auction of 12- and 18-month bonds last week also went badly, with Spain also forced to offer significantly higher interest rates to investors.

The centre-right Popular Party has had no time to savor its electoral victory over the Socialists, having to immediately address the grueling task of reassuring investors worried about Spain’s grim prospects for economic growth and getting nearly five million unemployed — 21.5 per cent of the work force — back to work.

Doubts that Spain will be able to make it are behind the rise in its borrowing rates. On the secondary market, where bonds are bought and sold after they are issued, the yield on Spanish benchmark 10-year bonds stood at 6.5 per cent, roughly the same as the day after the election and not far from the seven per cent level that is considered unsustainable over the longer term.

The future prime minister, Mariano Rajoy, has said he will maintain the purchasing power of retirement pensions but other than that, any kind of government spending is liable for cuts. However, Rajoy has kept the country and the financial community largely in the dark over his specific plans. He will not be sworn in until mid-December.

Standard & Poor’s Ratings Services said Monday it was maintaining its AA- rating with a negative outlook for Spain despite the conservative win.

Meanwhile, in a sign of the fragility of some of Spain’s lenders, the central bank announced late Monday that it had seized a small bank, Banco de Valencia, because of problems with solvency and liquidity stemming from overexposure to the real estate bubble largely blamed for Spain’s economic collapse. It is the fourth such seizure of a banking entity since 2009.

The Bank of Spain said it was injecting ¤1 billion in capital into Banco de Valencia SA and opening up a ¤2 billion credit line for it.