Spain concern puts brakes on European share rally

LONDON May 29 (Reuters) - European shares pared back earlier gains on Tuesday as persistent concern over the outlook for Spain's banking system capped early optimism over the possibility for further policy stimulus in China.

The FTSEurofirst 300 was up 0.1 percent at 984.52 by 0939 GMT, well off a session high of 993.28. Spain's IBEX , meanwhile, was once again the regional laggard, down 1.9 percent.

Spanish 10-year bond yields remained at elevated levels, just below 6.5 percent, keeping fears alive that the country will no longer be able to afford to fund its spending.

A level above 7 percent is widely seen as unsustainable and could force Spain to seek an international bailout, as did Greece, Ireland and Portugal.

"Credit markets aren't believing this equity market rally. The equity market is trying to hang onto any positive news, but the credit markets have ticked up over the last couple of days," Joe Rundle, head of trading at ETX Capital, said.