MADRID, Spain — SPAIN raised ¤4.8 billion ($550 billion) in a debt auction that saw strong demand and a substantial drop in its borrowing costs yesterday. But analysts and investors warned that Prime Minister Mariano Rajoy should not take the successful sale as a sign that the pressure to seek a rescue package was over.

“It’s purely a cosmetic image…. nothing has changed,” said Ramon Zarate of Madrid’s Emasl financial consulting group.

After the European Central Bank pledged two weeks ago to buy unlimited amounts of government bonds to help countries that are being strangled by their debts, Spanish borrowing costs have fallen sharply. Investors have grown more confident that, thanks to the European Central Bank (ECB) programme, the Spanish government could continue to pay its bills.

Yesterday’s successful auction of medium- and long-term bonds reflects this new confidence. The Treasury sold ¤859 million in benchmark 10-year bonds at an average rate of 5.67 per cent, down from 6.65 per cent in the last such auction August 2. Demand was 2.8 times the amount offered. It sold another ¤3.94 billion in three-year bonds at a rate of 3.84 per cent, up from 3.6 per cent. The total raised was ¤300 million more than planned.

However, the ECB plan, along with financial aid from Europe’s bailout funds, comes with strings attached and Madrid has said it may apply for the aid if the terms are reasonable.

Analysts say that if Spain doesn’t request a bailout soon, it is only a matter of time before its borrowing costs rise to unhealthy levels again.

Emasl’s Zarate warned that that investor patience was likely to dry up fast in October if Spain does not act soon.

“The next thing should be for Spain to ask for the bailout and take the volatility out of the market,” he said. “It’s playing with fire.”

Analysts and investors suspect the government is dawdling on the issue because it is afraid that a bailout will hurt the ruling Popular Party’s chances in regional elections in Galicia and the Basque region next month.

Zarate added that the interest rate charged in yesterday’s auction merely reflected what was being demanded on the secondary market following the ECB announcement, adding that the amount sold was “ridiculously low,” which indicated a lack of investor interest.

Craig Erlam, a market analyst for London-based Alpari UK, said the lower benchmark rate showed “confidence in Spain to pull through this is higher than expected.”

But he added that the “result is only going to convince (Spanish premier) Mariano Rajoy that he is in no rush to request aid from the European Union, and therefore accept their bailout conditions.”

He pointed out that Spain had now auctioned more than 82 per cent of its intended debt issuance for the year.

“Time is very much on Spain’s side, for now,” he said in a note.

Spain’s battle to regain investor trust in its government finances has had tough consequences for households and businesses.

The economic crisis has left the country with near 25 per cent unemployment and austerity measures and reforms aimed at reining in debt have triggered street protests and sparked some regional tensions.

Yesterday’s bond sale came as Catalonia regional government President Artur Mas met conservative Spanish Prime Minister Mariano Rajoy for talks on his demand for greater fiscal powers so that his powerful northeastern region can better manage its debt and deficit burdens.

The talks are the first since Mas led a massive rally in Barcelona last week that was seen as a show of strength for the region’s pro-independence camp and a warning to Madrid.

Rajoy is opposed to both extra fiscal powers for the region as well as the idea of any of the 17 regions breaking away from the Spanish state.

Speaking after the meeting, Mas said the meeting “did not go well” and there was no sign that the central government was prepared to change its position. He said Catalonia would review the situation and study its options in a Parliament debate next week.

He said “an historic opportunity had been lost” in furthering understanding and cooperation between Catalonia and Spain.

Catalonia is Spain’s most economically powerful region but also the one most in debt — it has asked for ¤5.02 billion from a central government fund.

News reports had said that if denied extra fiscal powers Mas would call early regional elections that could turn into a referendum on independence and cause further problems for the central government. But Mas said Thursday such decisions would have to be taken at another time.