Spain knows it can use euro aid mechanism: Merkel

Spain knows it can make use of the 750 billion euro rescue mechanism established for the euro, Chancellor Angela Merkel said on Monday, amid worries about the country's ability to refinance itself on capital markets.

"If there should be problems - and we shouldn't talk them up - the mechanism can be activated at any time," Merkel said. "Spain and any other country knows that they can make use of this mechanism if necessary."

Merkel was speaking in Berlin at a joint news conference with French President Nicolas Sarkozy, three days before a decisive European Union summit.

In the latest twist to the euro zone debt crisis, Spain said on Monday that foreign banks were refusing to lend to some of its banks, but denied it was on the brink of seeking a Greek-style European financial rescue.

Spain's Treasury Secretary Carlos Ocana acknowledged officially for the first time a liquidity freeze on some Spanish banks in the interbank market and said the government was working to restore confidence through budget cuts and reforms.

The fourth largest economy in the euro area, Spain needs to refinance 16.2 billion euros of bonds in July. It has been able to borrow on the markets but at a rising premium, paying an average 3.317 percent to sell three-year bonds last Thursday.