Spain's PM says bailout not imminent Mariano Rajoy's comments sent stock markets into reverse after a rally earlier in the day. Photograph: Zipi/EPA Spain's prime minister, Mariano Rajoy, has ruled out a multi-billion euro bailout before this weekend, despite the worsening economic situation and pleas from Madrid's neighbours for a resolution to the current crisis. Rajoy dismissed persistent speculation at a meeting of MPs that he was close to negotiating a rescue package with Brussels that could release up to €400bn in EU loans. His comments sent stock markets into reverse after a rally earlier in the day that gained momentum as a bailout appeared imminent. The FTSE fell 11 points to 5809 after a climb of 60 points in the morning on the expectation of a bailout announcement. Rajoy said Spain's financial situation would be helped if the 17 regional governments succeeded in cutting their annual spending deficits. Traders have become mesmerised by the twists and turns of the Spanish economy as it gets closer to joining Greece, Portugal and Ireland in formally requesting rescue funds from the European Financial Stability Facility. Rajoy, who is becoming notorious for prevarication, is understood to have asked for a delay until after elections in his home region of Galicia set for next month. The prime minister fears his PP party will lose the election if he is forced to accept a humiliating rescue package in advance of the vote. Angela Merkel, the German chancellor, is believed to have acceded to his request, after arguing that it would be easier for Brussels to focus on Madrid after Greece had been given the all-clear to receive its second bailout package. Talks between Greece and its lenders are dragging on as officials say the International Monetary Fund insists on stricter spending cuts before releasing funds. Troika officials have reportedly cast doubt over as much as €3bn worth of cuts at the heart of Athens' plan, leaving finance ministry officials pessimistic about agreeing upon the €11.5bn package acceptable to MPs before a meeting of eurozone finance ministers this month. One official complained that "it almost seems as if they want us to re-write the whole package." Greek media said Poul Thomsen, the IMF's mission chief, had the "harshest stance," triggering fears that the Washington-based fund was working to a different agenda and did not want to resolve the package, or release the next €31.5bn tranche of aid, until after the US elections on 8 November. Troika officials, representing the EU, European Central Bank and IMF, denied a Reuters report 10 days ago that claimed their report would be held back until after the race for the White House. However, they have insisted that wages, pensions and benefits be further slashed, claiming such cuts will bring "immediate results." The Greek finance minister, Yiannis Stournaras, is hoping that the troika's rounds of various ministries will produce "enough evidence" to prove that the proposed cuts can be implemented. Meanwhile City analysts remained optimistic that Spain would end the months long uncertainty and request a bailout. Spain's borrowing costs dropped 12 basis points to 5.77%, well down on the 7% they reached at the height of the crisis in the summer. "There's a sense of optimism, but there are still a lot of hurdles that need to be cleared, so we have to be wary of that," said Orlando Green, a rate strategist at Credit Agricole. Today's [fall in yields] may prove to be just another leg in an up-and-down move ... There could be more volatility in the future. Markets are also waiting on the outcome of a Moody's rating review, in which Spain could lose its investment grade rating. That could trigger a new round of selling in Spanish bonds. Many investors are unsure whether to anticipate a downgrade after a tight 2013 budget was relatively well received by the bond market. The agency was expected to announce a decision in September but it said on Tuesday it still had to assess factors such as domestic banks' capital needs and the budget plan, so the announcement would be later this month. "A Moody's downgrade for Spain could tip the balance for lower 10-year Bund yields towards 1.3%," Commerzbank strategists said. However, we see the odds slightly in favour of a rating confirmation and thus expect to see some relief in the periphery.