Spain's economy shrinks 0.4% as recession deepens

Spain has slid deeper into recession due to falling domestic demand

Spain's recession deepened in the second quarter of the year as the economy shrank 0.4%, figures show.

That compares with a 0.3% contraction in gross domestic product (GDP) in the first three months of the year.

Spain's borrowing costs over 10 years hit a record high of 7.5% last week on fears that it may find it difficult to repay its international debts.

Euro group leader Jean-Claude Juncker has called for the European Central Bank to act to cut Spain's debt costs.

"We will work in close agreement with the ECB, and we will, as ECB President Mario Draghi said, see results," Mr Juncker told German and French press.

"I don't want to drive expectations, but I must say, we have reached a decisive phase."

On Thursday, the ECB will announce its latest decision on interest rates and there is also increasing speculation that it may also announce that it is restarting its bond-buying programme, known as the Securities Markets Programme (SMP).

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The ECB is not entirely convinced that more bond buying, by itself, will be effective. Many market analysts have their doubts as well. ”

Stephanie FlandersEconomics editor

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Under the SMP, the ECB buys government debt from banks on the commercial market, which helps to bring down the cost of borrowing for governments without the ECB having to lend directly to them.

The SMP was suspended at the end of January.

Mr Juncker also referred to agreements at the last European Union summit regarding the European bailout fund, the EFSF.

Under the EFSF's constitution, the fund is permitted to buy government bonds on the primary market, effectively lending directly to indebted governments such as Spain.

This is important because the European Central Bank's constitution prevents it from lending money directly to governments.

It is now hoped that co-ordinated action between the ECB and the EFSF would be more effective in bringing down the borrowing costs of countries such as Spain and Italy.

ECB president Mario Draghi is also due to meet the US Treasury Secretary Timothy Geithner for talks later on Monday.

HSBC profits jump on asset sales

The bank highlighted performance in emerging markets, particularly in Asia

HSBC has announced a sharp rise in profits, thanks in part to asset sales, particularly in the US.

Pre-tax profit for the first six months of 2012 was $12.7bn (£8.1bn), up 11% on the $11.5bn the bank made a year ago.

Revenue growth was driven by investment and commercial banking in emerging markets, particularly in Asia.

The bank said it was setting aside $700m to cover any fines for recent accusations in the US of money-laundering.

Earlier this month, a US Senate report found that lax controls at Europe's biggest bank had left it vulnerable to being used to launder dirty money from around the world.

"HSBC has made mistakes in the past, and for them I am very sorry," said group chairman Douglas Flint.

"We cannot undo the mistakes but I can assure you that [chief executive] Stuart Gulliver and I are determined, and have made it our most important priority, to strengthen HSBC and reinforce our values."

Profits in the first half were boosted by $4.3bn of asset sales, including the sale of its Card and Retail Services business and 138 branches in the US.

Underlying profit at the bank fell by 3% to $10.6bn, while underlying revenue rose by 4%, thanks to strong growth in China, India, Brazil and Argentina.