Oil fell in Asian trade today with investor sentiment still under pressure on concerns over the Euro Zone’s ability to contain its long-running debt crisis, analysts said.

New York’s main contract, light sweet crude for September delivery, shed 27 cents to $87.87 a barrel in the morning trade and Brent North Sea crude for delivery in September was six cents lower at $103.20.

Gloom continued to pervade financial markets even after Spain denied on Monday that it would need a full international bailout.

The Bank of Spain said the economy had contracted 0.4 per cent in the second quarter, worse than the 0.3 per cent of the first, citing the impact of the debt crisis on consumer spending and confidence.

Financial markets have turned against Madrid in recent weeks after an initially positive reaction to a massive €65-billion austerity package turned sour. Each new initiative has failed to hold the line.

The yield — the rate of return investors earn — on the benchmark Spanish 10-year government bond jumped to 7.498 per cent from 7.225 per cent on Friday, well above the 7.0 per cent danger level for long-term funding.

“Spain’s debt woes... had investors running for cover to offload equities, commodities and currencies,” said Mr Justin Harper, a market strategist with IG Markets Singapore.

“Spanish borrowing costs shot up as investors whacked on a high risk premium.

“These levels are clearly unsustainable and send out a strong message that the outside world is very concerned about lending money to the Spanish government.”

With borrowing costs hitting the danger levels that forced Ireland, Greece and Portugal to seek a bailout, investors are concerned that Spain, the Euro Zone’s fourth largest economy, will also have to call in help.

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