Investors weigh developments in Spain

Spiking bond yields in Spain overshadowed the latest signs of growth in the United States economy on Thursday.

An auction of 10-year government bonds in Spain left the country paying interest rates of nearly seven per cent. That's the highest rate since 1997 and a level that economists see as unsustainable. Greece and Ireland received rescue loans from the European Union after their bond yields jumped above the same level.

Spain has much more debt than either Greece or Ireland, which would make it difficult for other countries to rescue.

Like Italy, whose main borrowing rate also spiked above seven per cent in the last week, the country is burdened with high debts and slow growth.

The auction came a day after Fitch Ratings warned that major US banks could be "greatly affected" if Europe's debt crisis continues to spread beyond the financially troubled Greece, Ireland, Portugal, Italy and Spain.

Concerns about Europe's debt crisis contrasted with better economic reports in the US.

The number of people seeking unemployment benefits last week fell to the lowest level in seven months. Applications fell to 388,000, below Wall Street's estimates. That's a sign layoffs are easing.

Building permits jumped 10.9 per cent, much higher than economists expected. That's another sign that the US may not be headed for another recession.

The Dow was down 167 points, or 1.4 per cent at 1 p.m.