European shares edged up and the euro was flat today as worries over contagion from Spain's banking sector were heightened by a sharp rise in the country's borrowing costs.

Riskier assets have fluctuated all week as optimism and disappointment have alternately gripped financial markets, reflecting a high level of unease over whether Spain's banking crisis can be contained and if Greece will remain in the euro zone after its June 17 election.

"The focal point for market anxiety is the absence of a sufficiently robust firewall to shore up Spain and Italy in the event that Greece leaves the euro zone," said Nicholas Spiro, managing director at Spiro Sovereign Strategy.

The uncertain outlook for Europe is expected to drive demand at a 10-year, five billion euro bond sale by safe haven Germany later today, even though equivalent bonds in the secondary market offer an extremely low 1.47 per cent.

In equity markets a choppy trading session in Asia earlier left the MSCI world equity index up 1.4 per cent at 301.82 points for a gain of over 3.5 per cent from last week's lows for the year.

The FTSE Eurofirst 300 index of top European shares rose 0.2 per cent to 992.29 points, having risen 0.7 per cent on Tuesday, although overriding nervousness in the market was highlighted by a 1.3 per cent rise in the Euro STOXX Volatility index.

The euro was little changed at $1.2505, close to the middle of a range between its two-year low hit on June 1 at $1.2288 and a three-week high reached on Monday at $1.2672.

Spanish 10-year yields, which hit euro-era highs of 6.86 percent on Tuesday, traded around 6.75 per cent but are expected to test the 7 per cent level, viewed by many as the point at which borrowing from capital markets becomes unaffordable in the long term.

Reuters