Spanish markets hit by Trump's renewed trade threat

LONDON, July 8 (Reuters) - Spanish stocks and bonds came under fire on Wednesday, after President Donald Trump demanded that the United States cut trade ties with the country, escalating tensions over defence spending and the Iran war during a NATO summit.

This isn't the first time the U.S. president has threatened Madrid. On Wednesday he called it a "terrible partner". In the early days of the war in March, he threatened a full trade embargo on Spain after the government's refusal to allow the U.S. military to use its bases for missions linked to strikes on Iran. Nevertheless, bilateral trade has continued normally.

• Spain's IBEX fell 2.6% on the day in afternoon trading, set for its worst one-day fall since Trump's initial threat in early March and making it the worst-performing major European stock market index on Wednesday. Europe's STOXX 600 was down 1.6%

• Shares in banking heavyweights Banco Santander and BBVA fell 4.3% and 3%, respectively, while Zara owner Inditex fell 3.6% and Telefonica lost 1.1%.

• Spanish 10-year bond prices declined as part of a global selloff in government bonds.

• Yields on the benchmark 10-year Bono were up 9 basis points on the day at 3.565%, the most since mid-May, compared with an 8-bp rise in German Bund yields. This resulted in a borrowing premium of 49.2 bps for Spain over Germany, the highest this month and not far from late March's peaks.

• Spanish 5-year credit default swaps, a derivative that reflects the cost of insuring the country's debt against the risk of default, rose to a one-month high of 15.6 bps, still well below the four-month highs above 21 bps observed in March, according to S&P Global Market Intelligence data.

(Reporting by Amanda Cooper; Editing by Andrei Khalip)