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PARIS (Reuters) - France's cost of borrowing over two and four years jumped by around half a percentage point at an auction on Thursday, reflecting growing concerns it may be dragged into the euro zone's sovereign debt crisis.
The government sold 6.98 billion euros of medium-term BTAN notes at the auction on Thursday, at the top of its projected range, but borrowing costs rose for three out of four lines compared to previous sales.
Investors are increasingly eyeing France -- the euro zone's weakest triple-A rated sovereign -- as the next domino to fall in a sovereign debt crisis that is already threatening to envelop Italy and Spain.
The French/German 10-year yield spread rose to more than 200 basis points on secondary bond markets on Thursday for the first time since the launch of the euro.
Debt management agency Agence France Tresor said it had placed 950 million euros, and 1.07 billion euros, respectively, of its 2.00 percent BTANs maturing September 2013 and July 2015.
The BTAN maturing September 2013 had an average yield of 1.85 percent -- compared to 1.31 percent at the last auction a month ago. The note maturing July 2015 had an average yield of 2.44 percent versus 1.96 percent.
France is battling to hold on to its prized triple-A credit rating, which allows it to service its debt more cheaply, with and many investors having already priced in a cut.
The renewed turmoil on European bond markets this week has come despite buying of bonds by the European Central Bank to ease the pressure on some governments.
Also on Thursday, Spain paid the highest rate to sell its 10-year debt since 1997, just shy of the 7 percent mark seen as unsustainable, as the country is swept deeper into the euro zone's debt crisis ahead of a Parliamentary election on Sunday.
Editing by Patrick Graham