Optimism after £81bn Spanish banks bailout starts to fade

The FTSE 100 Index initially jumped more than 2 per cent on hopes the bailout move would provide additional time for under-pressure political leaders to tackle the wider eurozone crisis.

But as the real impact of the latest EU support was fully considered, London’s leading shares index pulled back, standing just 0.5 per cent or 29 points higher.

Spain became the fourth country after Greece, Ireland and Portugal to turn to the eurozone rescue fund for financial help at the weekend when prime minister Mariano Rajoy admitted after weeks of denial that a bailout was required.

Graeme Leach, chief economist at the Institute of Directors, said: “Although the bailout will certainly help the Spanish banking system, the fundamental situation in Spain is the same this morning as it was a week ago.

“We are seeing a predictable short-term rally, but the future of the euro remains in serious doubt. All eyes this week will turn to the Greek elections.

“The domestic political situation in Greece and Spain is still likely to result in some form of eurozone break-up.”

The euro remained up against the US dollar while Brent crude oil also lifted back above $100 a barrel amid hopes of improved global demand.

Although the situation in the eurozone’s fourth biggest economy remains bleak, there are hopes that the eventual injection of support for its creaking banks will help to avoid the meltdown of the eurozone.

Chancellor George Osborne warned at the weekend that the UK faces a lost decade unless the eurozone crisis is brought under control.