Spanish stocks rebounded yesterday from strong losses at the start of trading after the European Commission issued a slightly better economic forecast for the country for 2010.

The Ibex-35 index, which at one point was down over three per cent after closing gown 5.41 per cent on Tuesday on fears that Spain would be singled by the fallout from the Greek debt crisis, later showed a fall of 1.03 per cent.

The market rebounded after the European Commission, the executive arm of the European Union, said it now expected the Spanish economy to contract by 0.4 per cent this year instead of by 0.6 per cent as it forecast in February.

"We are having a complicated time on financial markets but, in terms of the economic data, we are recovering, we have positive data and we are far better off than a year ago," Economy Minister Elena Salgado told Cadena Ser radio earlier yesterday.

The minister said Spain would not be announcing extra austerity measures in response to the loss of confidence among investors but would instead concentrate on implementing the programme it has already approved. "Rather than announcing new measures, what we have to do is enact what we have already announced," Ms Salgado said, adding that "markets (had) a speculative component that has been exacerbated by the situation in Greece."

Standard & Poor's on April 28 lowered Spain's long-term sovereign credit rating to AA from AA+ amid fears its recession could further weaken its public finances.

Spain posted a public deficit of 11.2 per cent of gross domestic product last year, the third biggest after Ireland and Greece.