World stock markets were mixed in choppy trade Thursday with Spain's borrowing costs rising to a euro-era record following a ratings downgrade tempered by a bout of optimism about Greek elections.
European stocks moved lower following losses in Asia, but several staged late rallies to close in positive territory including in Athens, which jumped more than 10 percent on hopes voters will elect a coalition Sunday that will keep it in the euro.
London's benchmark FTSE 100 index dropped 0.31 percent to 5,467.05 points and in Frankfurt the DAX 30 shed 0.23 percent to 6,138.61 points, but in Paris the CAC 40 bucked the trend to add 0.08 percent to 3,032.45 points.
Milan jumped 1.47 percent and Madrid gained 1.22 percent despite the turmoil in the bonds markets.
In foreign exchange deals, the euro rose to $1.2612 from $1.2556 late Wednesday in New York. The dollar fell to 79.28 yen from 79.46 yen.
Spain's borrowing costs reached new dangerous highs near 7.0 percent as a bailout loan of up to 100 billion euros (125 billion) to salvage the nation's stricken banks fell flat after a brief initial positive welcome.
"The rout in Spanish bonds continues relentlessly, as Madrid's borrowing costs move ever higher and ever closer to the dangerous seven percent level," said Chris Beauchamp, a market analyst at trading group IG Index.
Meanwhile Greek shares soared more than 10 percent on speculation that voters will elect a government committed the austerity policies key to it receiving further bailout aid and staying in the euro.
Analysts at IG markets said most investors were staying on the sidelines until after the Greeks vote, leading to higher volatility.
"Investors were nevertheless a little more optimistic than at the beginning of the session in a market fuelled on rumours hopeful that a pro-austerity government will be elected," they added.
The interest rate on Spanish 10-year government bonds soared to just under 7.0 percent to their highest since the birth of the single currency and were up sharply from 6.721 percent Wednesday.
Neil MacKinnon, an economist at financial group VTB Capital, said that a level of 7.0 percent was "considered by the markets to be a tipping point which eventually increases the prospect of a government bailout."
Italy also had to pay investors much higher rates of return Thursday, reflecting increasing concerns over the eurozone debt crisis, when it raised medium- and longer-term financing.
Such high rates are regarded by many analysts as impossible for Spain to afford to finance its activities over the longer term, raising the risk of a bigger bailout, as was the case for Greece, Ireland and Portugal.
Moody Investors Service slashed Spain's sovereign debt rating by three notches late Wednesday to Baa3 and left it on review for a possible further downgrade.
Since many institutional investors are barred from buying bonds that are rated as junk, or non-investment grade, the prospect of a further downgrade sent a further chill through the market.
The borrowing "will materially worsen the government's debt position," Moody's said, projecting the country's public debt ratio to hit 90 percent of gross domestic product output this year and to continue rising through 2015.
Last week, Fitch also slashed Spain's rating by three notches but Standard and Poor's, while noting Madrid's difficulties, took no action, having cut its Spanish ratings by two notches in April.
In Asian trade, stock markets closed mostly down as dealers followed losses on Wall Street while selling pressure was also stoked by fears over Spain and nervousness ahead of the Greek polls at the weekend, traders said.
Tokyo dropped 0.22 percent, Sydney shed 0.53 percent and Hong Kong lost 1.15 percent.
German Chancellor Angela Merkel on Thursday said that the eurozone crisis would dominate next week's G20 summit but warned world leaders that her powers to act were limited.
US stocks climbed higher despite disappointing government economic data on jobs and inflation.
In midday trade, the Dow Jones Industrial Average was up 0.85 percent to 12,603.09 points.
The S&P 500-stock index advanced 0.78 percent to 1,325.08 points, while the tech-heavy Nasdaq Composite climbed 0.61 percent to 2,820.63.
Weekly initial jobless claims rose more than expected and consumer prices fell in May for the first time in two years, driven by falling gasoline prices, but core inflation rose 0.2 percent for the third straight month.