Europe stocks mostly higher in choppy action

LONDON (MarketWatch) � A sudden late-day surge in Spanish bond yields to an all-time intraday high put sovereign fear and contagion risks back at center stage for the euro zone Tuesday, as Italian yields also climbed and stocks battled to stabilize after a volatile session.

The Stoxx Europe 600 index XX:SXXP closed 0.6% higher at 243.44, after an intense day of swinging between gains and losses.

Click to Play How Spain�s bailout affects the U.S.

Spain's request for a bailout for its banks represents yet another mixed success for the U.S. in its two-year-long effort to press Europe to get on top of its debt crisis.

Stock markets plunged briefly into negative territory in afternoon action as the yield on 10-year Spanish government bonds ES:10YR_ESP reached an all-time high of 6.85%, according to the electronic trading platform Tradeweb. A sovereign yield level of 7% is widely considered unsustainable and has prompted bailouts of euro-zone countries, beginning with Greece. Yields on the benchmark bonds ended at the highest closing level on record, up 21 basis points at 6.74%. A basis point equals 1/100 of a percentage point.

The IBEX 35 index XX:IBEX seesawed for most of the afternoon session but closed in positive territory, up 0.1% at 6,522.50.

Spanish stocks on Monday overall set the pace for a volatile day in Europe, with the main index shedding all of what at one point was a nearly 6% gain as investors increasingly expressed disappointment over a plan for the European Union to loan as much as �100 billion ($125 billion) to the troubled banking sector. Market Extra: Spanish bond yields, insurance hit records.

�This solution is still some way off,� analysts at Credit Suisse said in a note. �Spanish GDP could end up falling another 5% on account of fiscal tightening, private-sector leveraging, bank de-leveraging and falling wages. This will have a negative impact on the fiscal arithmetic and credit quality.�

Reuters A pedestrian walks past a London branch of the Spanish bank Santander.

�We think Europe is only halfway through resolving the crisis,� the analysts added. �In particular, we believe that we will need [a European Central Bank] deposit guarantee or a [long-term refinancing operation of �2 trillion over five years].�

Banks in Spain were lower, as Fitch Ratings lowered its rating on 18 Spanish banks following last week�s downgrade of Spain�s sovereign-debt rating. On Monday, Fitch Ratings downgraded two other banks, Banco Santander SA ES:SAN , whose stock was off 0.4%, and BBVA SA ES:BBVA BBVA , whose shares were 0.2% lower. Fitch lowers rating on 18 more Spanish banks �

Bankinter SA ES:BKT dropped 4.6%, Banco Popular Espa�ol SA ES:POP lost 3.6% and Bankia SA ES:BKIA fell 1.9%.

Italian banks were also lower: Banca Monte dei Paschi di Siena SpA IT:BMPS lost 5.9%, Intesa Sanpaolo SpA IT:ISP gave up 3.7%, while UniCredit SpA IT:UCG dropped 4%.�

The FTSE MIB index XX:FTSEMIB �slipped 0.7% to 12,979.69, as yields on 10-year Italian government bonds IT:10YR_ITA �surged 13 basis points to 6.17%.

�Markets are concerned that it�s not clear how the intervention for Spain will be financed, so they are afraid there will not be anything left for Italy if it needs help,� McLean from SVM Asset Management said. �The pool of potential contributors to the rescue funds narrows each time a new country runs into problems, and now Spain is asking for money. We�re left with Germany and to some extend France to contribute.�

�There�s belief that at some stage we�ll get a big intervention and the ECB will start printing money. There will be a recognition of the seriousness of the problems and that there�s a need for quantitative easing,� he added.

Movers

Defensives, such as food and beverage stocks, provided support for the pan-European Stoxx 600 gauge. Nestle SA NSRGY CH:NESN rose 1.3%. Drug manufacturers also lent support, with Roche Holding AG CH:ROG �up 1.6% and Novartis AG CH:NOVN �rising 1.1%.

Julius Baer Gruppe AG CH:BAER �rose 2.7%, after UBS lifted shares of the private bank to buy from neutral.

Amlin PLC UK:AML rose 1% after the insurance and reinsurance group was upgraded to buy from hold at Deutsche Bank.

Among other indexes, the FTSE 100 index UK:UKX �added 0.8% to 5,473.74, also helped by defensive stocks such as British American Tobacco PLC UK:BATS , 1.5% higher.

UK:BATS Miners such as BHP Billiton PLC,UK:BLT �BHP , up 1.5%, supported London, as most metals prices moved higher. Anglo American PLC UK:AAL �gained 1.3% and Fresnillo PLC UK:FRES �took on 2.4%.

Data for the U.K. showed the seasonally adjusted index of production was unchanged for April on a monthly basis, although the index dropped for a 14th consecutive month year on a year-over-year basis.

The French CAC 40 index FR:PX1 rose 0.1% to 3,046.91, with cement maker Lafarge SA FR:LG �adding 2.1% after it announced a plan to reduce costs by �1.3 billion by 2015. See: Lafarge to speed cost cuts, lift sales, cut debt

The German DAX 30 index DX:DAX �gained 0.3% to 6,161.24. E.ON AG DE:EOAN �rose 2% after the utility was upgraded to buy from neutral at UBS. Industrial conglomerate Siemens AG DE:SIE �took on 1.1%

TomTom NV NL:TOM2 �shares leapt 16.2% as the Dutch provider of navigation technology announced a mapping-data deal with Apple Inc. AAPL � See: TomTom shares leap on Apple deal.