Spanish stocks fell sharply on Monday amid fears that a number of regional governments will ask Madrid for financial support. The falls come after Spain's IBEX index fell by nearly 6 percent on Friday when Valencia, a region on Spain’s southern coast, said it would seek financial support from the central government.

Figures released on Monday underlined the concerns surrounding Spain. The country saw economic growth contract by 1 percent year-on-year in the second quarter. On a quarterly basis the economy contracted 0.4 percent.

Spain's economy minister Luis De Guindos ruled out the possibility of a full-scale bailout on Monday, but markets remained nervous.

Asked about this possibility on the sidelines of a congress hearing about the European aid to ailing Spanish lenders, De Guindos told Reuters: "Absolutely not."

Spanish 10-year borrowing costs rose sharply to trade around 7.5 percent having traded below the key 7 percent mark just days ago.

Over the weekend media reports indicated Murcia, a small region to the south of Madrid would be the second of Spain’s 17 highly indebted regional governments to seek aid. Speaking in a local newspaper, the head of Murcia’s local government Ramon Luis Valcarcel said he hoped to tap government funds.

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