UPDATE 1-Spain's short-term debt costs rise at auction
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MADRID, July 16 (Reuters) - Spain easily sold short-term debt at a T-bill auction on Tuesday although investors demanded slightly higher returns than at a previous sale.
They bought against a background of renewed concern about the euro zone debt crisis and signs the U.S Federal Reserve will curtail its stimulus programme.
The yield on Spain's six-month bill rose to 0.958 percent in the auction, compared with 0.821 percent in the last auction in mid-June. Yields were 1.503 percent on the 12-month bill, more than the 1.395 percent last time.
But the Treasury sold 4.05 billion euros ($5.28 billion) of six- and 12-month paper, just over the top end of its 4-billion-euro target.
Recent downgrades to the credit ratings of Italy and France have raised fresh concerns about the health of the euro zone, however, even as Spanish politicians project the country will emerge from recession in the second half of the year.
The Spanish government expects growth in the second quarter to have been close to zero, after the economy shrank 0.5 percent in the first three months of the year.
Worries over Portugal, where the opposition party has demanded a renegotiation of Portugal's bailout terms, has also raised the spectre of political problems in the bloc.
In Spain, a party financing scandal has dogged Prime Minister Mariano Rajoy, though so far few believe that has fed directly into the country's debt costs.
"It doesn't seem this theme... is affecting the market," said Nicolas Lopez, director of analysis and market at M&G Valores. "The truth is that the absolute majority held by (Rajoy's) People's Party means there is little threat to the stability of the government, and that's the way the market sees it."
Analysts said broader European concerns had more likely weighed on yields, while investors are also watching for further signs of the U.S. Fed's stance on quantitative easing.
At 0915 GMT, the yield on Spain's 10 year bond was around 4.74 percent on the secondary market, up only slightly from yesterday's close. ($1 = 0.7664 euros)
(Reporting by Sarah White and Manuel Ruiz, Editing by Clare Kane.Jeremy Gaunt)