* Euro hovers above last week's low at $1.2555

Tue May 29, 2012 5:15am EDT * Euro hovers above last week's low at $1.2555 * Spanish bond yields edge lower but near 6.5 pct * China stimulus hopes lift global equities LONDON, May 29 (Reuters) - The euro hovered near a two-year low on Tuesday with investors worrying about Spain's banking problems, the outcome of the Greek elections and the health of the global economy. But speculation that China may soon unveil more spending measures to support flagging growth and a view that U.S. data later in the week will show the recovery in the world's top economy on track helped support equities and commodities. The euro stood at $1.2555, near last week's two-year low of $1.2495 due to the rising nervousness over the cost of shoring up Spain's banking system and the impact this could have on the finances of the euro zone's fourth biggest economy. Ten-year Spanish bond yields were 3 basis points lower at 6.46 percent on Tuesday after hitting a high of 6.53 percent in the previous session. The premium investors demand to hold Spanish debt compared with safer German Bunds remained over 500 basis points after the rate posted a euro-era high of 515 basis points on Monday. "A 10-year yield spread over Germany of more than 500 basis points and an outright yield of 6.5 percent are unsustainable levels," said Derek Halpenny, European head of global markets research at Bank of Tokyo-Mitsubishi UFJ. "Hence a policy decision will need to be made quickly or else Spanish yields will surge through that key 7.0 percent level that was the trigger for formal bail-outs in other countries." Yields on safer German Bunds, which returned to near record lows on Monday, edged higher as investor demand sparked by the Spanish fears eased. But with Greek elections looming in just over two weeks, and an Irish referendum on the EU fiscal treaty on Thursday, prices are expected stay well supported. The 10-year German bond yield was up 1.5 basis points at 1.378 percent while June Bund futures were 15 ticks lower at 144.22. Conservative parties in Greece have an opinion poll lead that would allow the formation of a government committed to keeping the country in the euro zone but it remained a tight race. Ireland is however expect to approve the treaty despite anger at government austerity measures. EQUITIES LOOK EAST Without any major fresh news on the euro zone crisis, equity markets focused on reports from China suggesting the government could be about to unveil more spending plans to boost flagging economic growth. In one such report the official Shanghai Securities News said China's biggest banks appeared to have accelerated lending toward the end of this month as Beijing starts to fast track its approval of infrastructure investments. China watchers say the government might pump as much as 2 trillion yuan ($315.28 billion) into the economy this year in order to bolster growth, well below 4 trillion yuan ($635 billion) of stimulus it did in the wake of the 2008-09 global financial crisis. But the potential for an uptick in demand from any Chinese stimulus programme helped lift the FTSEurofirst 300 index of top European company shares by 0.8 percent to 992.30 points, with mining stocks leading the way. Earlier these hopes had spread through Asian shares lifting the resource-heavy Australian market one percent, while global shares, as measured by the MSCI world equity index extended their recovery from last week's sharp selloff by rising 0.3 percent to 301.87 points. "Eyes have now turned to China where stimulus by the government is apparently imminent," said Lex van Dam, hedge fund manager at Hampstead Capital, which manages $500 million of assets. Read Powerful "Flame" cyber weapon found in Iran 28 May 2012 Romney tells vets dangerous world demands powerful military 28 May 2012 Fukushima radiation seen in tuna off California 28 May 2012 UK has changed for worse under Queen Elizabeth: poll 28 May 2012 Samsung Galaxy S3 gets head start on rival iPhone 4:14am EDT Watched One stray dog's incredible journey with Chinese cyclists One stray dog's incredible journey with Chinese cyclists Sun, May 27 2012 A look at the UK’s most beautiful face A look at the UK’s most beautiful face Thu, May 10 2012 Cruise ship crunch Cruise ship crunch Sat, May 26 2012 GLOBAL MARKETS-Spanish bank concerns weigh on euro, Related News Spanish bank concerns keep euro near two-year low 4:52am EDT GLOBAL MARKETS-Spain's bond yields rise on bank recap plans Mon, May 28 2012 European shares, euro gain as Greek fears ease Mon, May 28 2012 GLOBAL MARKETS-Shares, euro creep up from lows, remain vulnerable Mon, May 28 2012 Euro slides again vs. dollar on fears of spreading debt crisis Fri, May 25 2012 Related Topics Stocks » Currencies » Bonds News » Bonds » Markets »