Spain is preparing to become the fourth euro-area country to seek emergency assistance as EU’s finance chiefs plan weekend talks on potential aid to shore up the country's banks.

European Central Bank vice president Vitor Constancio said today that a Spanish request is "awaited" and will be "exclusively directed at the recapitalisation of banks."

EU finance ministers are scheduled to hold a conference call tomorrow to discuss a Spanish request for aid, although no figure on the assistance has yet been set.

The Eurogroup will issue a statement after the call, according to officials. "The announcement is expected for Saturday afternoon," one of the officials said.

The prospect of action underscores officials' concerns that Greek elections on June 17th may unsettle investors as Spain struggles to persuade markets it can protect troubled banks and finance its budget deficit.

The dramatic move comes after Fitch Ratings cut Madrid's sovereign credit rating by three notches to BBB from A yesterday, highlighting the Spanish banking sector's exposure to bad property loans and to contagion from Greece's debt crisis.

"The government of Spain has realised the seriousness of their problem," a senior German official said earlier.

A spokesman for the European Commission said Spain had made no request for aid and would not confirm that a conference call was planned.

But added that if Spain did make a request, the euro zone had instruments ready to provide help.

Speaking in Berlin, German chancellor Angela Merkel said she was not pressing any country into taking a bailout, saying it was up to Spain to decide what it wanted to do: "It's down to the individual countries to turn to us," she said.

"That has not happened so far, and therefore (we) will not exert any pressure."

In Madrid, where the Spanish cabinet was holding its weekly meeting, a government spokeswoman said she was not aware of any pending announcement on a bank rescue.

She recalled that prime minister Mariano Rajoy said yesterday he would await the outcome of two external audits later this month before talking with Europe about how to recapitalise troubled lenders.

Spain is expected to request aid from the euro zone's €440 billion bailout mechanism, known as the European Financial Stability Facility.

The amount depends on the results of audits being conducted by the International Monetary Fund and independent assessors.

Financial industry sources said yesterday that a report by the IMF, to be handed to Spain today and expected to be made public on Monday, had estimated Spanish banks' capital needs at a minimum of €40 billion.

The euro zone has been under strong pressure from the US, China, Canada and other major partners to take swift, decisive action to prevent the debt crisis spreading and causing greater damage to the world economy.

Fitch said the cost to the Spanish state of recapitalising banks stricken by the bursting of a real estate bubble, recession and mass unemployment could be between €60 to €100 billion - or 6 to 9 per cent of Spain's gross domestic product.

The higher figure would be in a stress scenario equivalent to Ireland's bank crash.

The IMF report is expected to provide a range of figures, with €40 billion the minimum requirement, rising to around €90 billion for a fuller recapitalisation, officials said.

Global stocks, the euro and oil prices fell today after hopes for more stimulus from central banks faded and on the back of expectations Spain will seek assistance for its banks.

MSCI's world equity index was down 0.4 per cent at 300.01. The index is still up 2.6 per cent on the week, on pace for its best week since January.

The euro fell 0.7 per cent to $1.2487, retreating from a two-week high of $1.2625 hit yesterday.

While Spain would join Greece, Ireland and Portugal in receiving a European financial rescue, officials said the aid would be focused only on its banking sector, without taking the Spanish state out of credit markets.

Treasury minister Cristobal Montoro caused consternation on Tuesday when he said Spain was effectively being shut out of capital markets by spiralling borrowing costs.

Madrid managed to sell €2.1 billion in bonds yesterday at higher yields, showing it could still access credit markets.

Reuters