Spain spooks markets as Valencia requests aid from stricken state

Spanish shares suffered their biggest one-day drop in two years, leading European markets’ plunge downwards, after a major Spanish region said it needed rescuing.

Spanish shares suffered their biggest one-day drop in two years, leading European markets’ plunge downwards, after a major Spanish region said it needed rescuing by its cash-strapped government and the country braced for more recession.

The IBEX share index in Spain fell 5.8pc, while Italy’s own FTSE MIB lost 4.4pc, after Valencia became the first region to seek a bail-out from a new fund setup by the Spanish central government, which is itself under heavy financial strain.

As fears rose, the sell-off was seen across Europe, with Germany’s DAX dropping 1.8pc and the UK’s benchmark FTSE 100 losing 1.1pc to close at 5,655.04.

“Like other regions, Valencia is suffering the consequences of liquidity restrictions in markets as a result of the economic crisis,” the regional administration said, as it announced it was preparing to tap the Spain’s new €18bn (£14bn) emergency-loan fund for its regions for an undisclosed amount.

The news spooked investors, who worry that demands from Spain’s regions will put the central government under yet more financial pressure, making a full-blown rescue for the state unavoidable.