* Treasury to sell new 10-year benchmark bond
* Average yield to set new euro-era record high
* New govt will need to act fast after Nov. 20 election
* Results due around 0940 GMT
By Nigel Davies
MADRID, Nov 17 (Reuters) - Spain will pay its highest cost of borrowing since the creation of the euro to sell 10-year debt on Thursday as the euro zone's sovereign debt crisis intensifies.
The Treasury aims to sell between 3 billion euros ($4.1 billion) and 4 billion euros of a new 10-year benchmark bond that will take its 2011 borrowing to almost 90 percent of the targeted amount. France, whose yield premium over Germany hit a euro-era high on Tuesday on fears it may lose its top-grade AAA rating, is also due to sell 6-7 billion euros of debt.
The Spanish auction will be the last before a general election on Sunday which is widely expected to usher the centre-right People's Party (PP) into power.
With the crisis spreading to the 17-country currency's core, PP leader Mariano Rajoy will have little time to assure investors he can take control of Spain's finances and stop it becoming the fourth member of the bloc to require a bailout.
A successful Spanish T-bill auction on Tuesday and the recent rise in Spanish debt yields means the paper is likely to attract demand but the cost will be high, with an average yield of around 6.5 percent expected by analysts. The bond will carry a 5.85 percent coupon.
A 10-year yield of more than 7 percent is generally regarded as unsustainable for countries to finance their debts.
"It's clear at these levels the market will not be confident about buying on a sustained basis," said David Schnautz, strategist at Commerzbank, who expected the auction yield to come in at between 6.55 percent and 6.75 percent.
He said the new government would need to act fast, even if the Treasury could afford to pay these rates for several months.
"The market will want to see a big-time austerity package and Rajoy will not have much time to act."
If the average yield is as expected at the Spanish sale, it will be the highest paid by the Treasury to sell 10-year debt since the creation of the euro in 1999. The highest it has paid this year for the same maturity was 5.986 percent on July 21.
The record yield levels come despite continued, if limited, buying of periphery debt by the European Central Bank.
The ECB has spent 187 billion euros on the programme, first started in May 2010 and reactivated in August to help market contagion spreading to Italy and Spain.
Spain has been overtaken in recent weeks by Italy as the main focus of investor concerns given its massive debts, slow growth and lack of progress on reforms. Italy sold five-year bonds on Monday at a euro-era high yield of 6.29 percent.
But that could change again in the weeks ahead, say analysts, if Spain does not assure markets it is committed to its deficit cutting course and to reforms to stimulate growth.
The PP has said it will stick to the country's "unconditional" deficit targets, even if it may struggle to do so as the economy is seen as likely to slip into recession again as soon as the first quarter of next year.