Spain's banks hit by lending refusal

Treasury Secretary Carlos Ocana acknowledged officially for the first time a liquidity freeze on some Spanish banks in the interbank market and said the government was working to restore confidence through budget cuts and structural economic reforms.

"It's definitely a problem," Ocana told a conference of business leaders in the northern town of Santander when asked about the reported credit squeeze. But he said Madrid was not negotiating any financial aid package.

"Spain does not need additional financing from any international institution. The rumour is false and I deny it," he said.

The fourth largest economy in the euro area, Spain needs to refinance 16.2 billion euros of bonds in July.

It has been able to borrow on the markets but at a rising premium, paying an average 3.317 percent to sell three-year bonds last Thursday.

Banking sources said last week the liquidity freeze was affecting savings banks and small banks but not the country's biggest financial institutions.

Spanish banks have been under pressure since the Bank of Spain stepped in last month to take over CajaSur, a small, 146-year-old lender controlled by the Catholic Church, highlighting the precarious position of other savings banks.