Spain's debt problems keep markets on edge

LONDON (Reuters) - European shares and the euro inched higher on Tuesday but the gains were likely to be limited because investors are worried about Spain's financial problems ahead of two debt auctions.

Spain is expected to pay record high rates for short-term bills later in the day and at a sale of longer-term bonds on Thursday, heightening fears the government will soon need international help.

Those concerns eclipsed the more positive news that Greece's conservatives looked set to form a coalition government.

Spanish 10-year bond yields hit a record high on Monday above the 7 percent mark which has previously led to sovereign bailouts for Greece, Ireland and Portugal.

"The jump in Spanish borrowing costs shows very clearly that global leaders are running out of time to find the solution to the euro zone crisis," said Michiyoshi Kato, senior vice president of forex sales at Mizuho Corporate Bank in Tokyo.

Investors are also in a cautious mood ahead of the two-day Federal Reserve's policy meeting, which begins later on Tuesday. They are looking for an indication there will be further steps to boost the stalled U.S. economic recovery.

The FTSE Eurofirst <.fteu3> index of top European shares gained 0.2 percent in early trading after a weak Asian session, which left the MSCI world equity index <.miwd00000pus> virtually unchanged at 306.64 points.

The euro edged up 0.2 percent to $1.26, well below the one-month high of $1.2748 hit in an initial reaction to the weekend's Greek election, while the dollar, measured against a basket of currencies <.dxy> eased 0.2 percent to 81.75 points.

Ten-year German government bond yields, a traditional safe haven for investors, eased in price to gain a basis point to 1.423 percent.

(Reporting by Richard Hubbard; Editing by Anna Willard)

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