Madrid, Apr 18 (IANS/EFE): Spain sold 3.17 billion euros ($4.16 billion) worth of short-term government debt Tuesday, although its borrowing costs rose to their highest levels since December 2011.

The Treasury paid an interest rate of 2.74 percent on 2.09 billion euros worth of 12-month notes, up from 1.47 percent in the previous such auction March 20. It paid 3.2 percent to sell 1.09 billion worth of 18-month notes, compared with 1.77 percent last month.

Demand from banks was roughly three times the amount sold, which was more than the 3-billion-euro maximum target for the auction.

Including this latest auction, the Treasury has met 47 percent of its gross bond issuance target for the year.

Following the sale, Spain's risk premium - the extra return investors demand on Spanish government bonds compared to safe-haven German debt - fell to 414 basis points at the market close, sharply down from 435 bps at the opening.

On the secondary market, the yield on Spain's benchmark 10-year bond fell below 6 percent after beginning the session at 6.07 percent.

The IBEX-35, the Madrid stock exchange's benchmark index, down at the start of the session following the nationalization of oil major Repsol's Argentine unit, reversed course after the debt auction and ended up 2.28 percent for the day at 7,373.30.

The higher interest rates on Spain's bonds reflect investor unease about the country's finances.

Spain has pledged to bring its deficit down to 5.3 percent of its gross domestic product this year, as required by the European Stability Pact, yet it must tackle sky-high employment in a contracting economy.

The 2008 global financial meltdown came as Spain was struggling with the bursting of a decade-long real estate bubble. The ensuing slump has led to numerous business failures and pushed the country's jobless rate to nearly 23 percent, representing 5.2 million people out of work.

The jobless rate among Spaniards under 25 is 48 percent, while tens of thousands of families have been evicted from their homes after falling behind on their mortgages.

Anger over persistent high and rising unemployment played a major role in the conservative Popular Party's landslide victory over the incumbent Socialists in last November's elections.