UPDATE 3-Spain funding costs spike, banking doubts gnaw
* Difficult for Spain to finance itself - PM
* Yield on benchmark 10 year bond hits 6.5 pct
* Bankia delays Q1 results
By Fiona Ortiz
MADRID, May 16 (Reuters) - Spain's prime minister voiced concern on Wednesday about the state's ability to finance itself as fears mounted over a spread of the euro zone debt crisis from Greece and a nationalised bank delayed publishing accounts amid talk of it needing more aid.
With creditors spooked by Greece's difficulties further east along the Mediterranean, the cost of borrowing for Mariano Rajoy's government hit 6.5 percent on benchmark 10-year bonds, more than 500 basis points above German debt and a record in the 13 years the two states have shared the common currency.
"It's a difficult and complicated situation," the premier told reporters in parliament as traders wondered whether Madrid might one day, like smaller Greece, Portugal and Ireland, need foreign help. "The risk premium has risen a lot and that means that it is difficult to finance yourself at a reasonable price."
The 10-year yield spread over German Bunds later edged back to about 483 basis points, a shade below Tuesday's close . But Rajoy, a conservative who wants to cut spending in the teeth of a deep recession and high unemployment, told lawmakers that Spain will still face "astronomical" borrowing costs if it fails to rein in its debts.
The failure of the newly elected Greek parliament to produce a ruling coalition willing to honour the terms of an EU/IMF bailout, and the calling of a new election which anti-bailout leftists may well win, has increased the possibility of a messy debt default by Athens and its exit from the euro zone.
Rajoy, who is trying to balance promises to cut the deficit with attempts not to further strangle the tax-paying base of the economy, said the European Union had to take measures to stem the wider crisis but that Spain must also get its own house in order rather than seek help from the European Central Bank.
While the example of Greece has weighed on investors' willingness to lend to Spain, the prospect of yet more state liabilities appearing in the Spanish banking system due to bad loans from a burst property bubble is also a concern.
On Wednesday, troubled lender Bankia, partly taken over by the government last week, delayed publishing first- quarter results, stoking fears over the scale of losses at the bank and sending its shares down 10 percent.
Some market watchers believe Spain - or Europe - will have to inject funds into the financial sector to avert a collapse of the banking system, dragging Spain closer to an EU bailout.
Shares in Bankia dropped 10 percent, having already lost about 30 percent since the nationalisation last week and about half their value since they were listed on the market last July.
For all the worries over the domestic banks, Spain's top diplomat to the European Union said question marks over Greece were mainly to blame for the jump in Spain's borrowing costs.
"Investors have serious political doubts ... fundamentally because of the Greek situation," Inigo Mendez de Vigo told reporters at a financial seminar. "There's a question mark around Greece that drags on all of the other countries."
Rajoy has passed two different reforms this year to try to clean up the country's troubled banks, without persuading investors the government has solved the sector's problems.
The government has asked external auditors to analyse the banks' balance sheets which may result in more demands for provisions for banks already struggling to write off losses.
Despite Bankia's tumble, Spanish bank shares were steady on Wednesday, indicating there has not been a contagion of mistrust. Small investors who had bought into the bank's July stock market listing were dumping Bankia stock, traders said.