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Spain central bank: recession continued in Q1

A man looks at a bird as he sits in the square in Madrid, Spain, Monday, April 22, 2013. The 2012 figures from Eurostat, the European Union's statistics office, showed Monday that in spite of efforts to get a handle on its debts, Spain saw its budget deficit rise to 10.6 percent of GDP in 2012 from 9.4 percent the year before as the country took US dlrs 52 billon (40 billion euro) in rescue loans to help its banks. Excluding the rescue funds, Spain says its deficit last year improved to just under 7 percent, above the initially pledged target of 6.3 percent. (AP Photo/Andres Kudacki)

MADRID (AP) -- Spain's recession continued in the first three months of the year, with the economy shrinking by 0.5 percent, its seventh quarterly contraction, the Bank of Spain said Tuesday.

The central bank said that the first-quarter drop was somewhat milder than the 0.8 percent recorded in the final quarter of 2012. Compared with a year earlier, the economy was 2 percent smaller.

The central bank blamed the quarterly contraction on a further fall in consumer spending, which dropped 0.8 percent in the first quarter. The unemployment rate is 26 percent.

The bank has predicted the economy will contract 1.5 percent this year and only return to growth in late 2014.

Official figures by the national statistics agency will be reported on April 30.

The figures came as the country's Treasury successfully sold 3 billion euros ($3.9 billion) in short-term debt with lower interest rates indicating growing investor confidence in the government's handling of the economy. Spain's borrowing costs have also fallen over the past few months following a pledge by the European Central Bank to buy up unlimited amounts of debt if asked by a country in need of help.

The Treasury sold 2.16 billion euros in nine-month bills at an average interest rate of 0.79 percent, compared with 1 percent in the last such auction March 19. It also placed 855 million euros in three-month bills at 0.12 percent, down from 0.29 percent last month.

The Economy Ministry said the three-month rate was the lowest ever paid for these bills. It said that with this auction Spain has now raised 44.1 percent of a targeted 121.3 billion euros for the entire year.