Escalating Europe's Bailout Bonanza

from WSJ:

BERLIN—The euro zone's sovereign debt crisis escalated Friday as the market homed in on Spain as another potential weak spot, leaving officials scrambling to quell investors' fears.
Spanish Prime Minister Jose Luis Rodriguez Zapatero moved to dispel the growing anxiety surrounding the country's fiscal position Friday, saying there was "absolutely" no chance the euro zone's fourth-largest economy would seek a bailout from the European Union. But his attempt to calm the markets had little effect, with the euro tumbling and the selloff in Spanish and Portuguese sovereign bonds continuing.
"If we continue to see the recent trend in Spanish bond yields then the crisis is going to be taken to a completely new level, as Spain accounts for approximately 11.7% of euro-zone [gross domestic product] which is pretty much double the figure of Ireland, Portugal and Greece [combined]," said Gary Jenkins, head of fixed-income research at Evolution Securities.
Sparking Friday's markets turmoil was a report in Friday's Financial Times Deutschland, which quoted unnamed German finance ministry officials as saying an aid package for Portugal would reduce the chances that Spain would also need a bailout.
The Portuguese and Spanish governments, the European Commission and Germany's finance ministry all denied the report, saying pressure wasn't being placed on Portugal to seek help. "It's absolutely, completely false—every reference for an aid plan for this country. It has neither been asked for and neither have we suggested it. It is absolutely false," said European Commission President Jose Manuel Barroso, a former Portuguese prime minister.
But the report still caused the euro to tumble against the dollar to $1.3252 from $1.3355 late in New York Thursday.
The yield premium that investors demand to hold 10-year Portuguese sovereign bonds rather than German bunds rose 0.3 percentage points to 4.35 percentage points, according to Tradeweb, while the spread between Spain's 10-year bonds and bunds spread rose to a fresh euro-era record high of 2.67 percentage points. The spread later recovered to 2.59 percentage points, still 0.07 percentage points higher than Thursday.