Spain raised 5.5 billion euros ($7.7 billion) in an auction of 12 and 18-month bills on Tuesday, the first since Moody's Investors Service cut its credit rating last week.

The Treasury said it sold 3.97 billion euros in 12-month bills at an average yield -- the rate of return earned by buyers -- of 2.128 percent, down from 2.41 percent in the last comparable auction on February 15.

It also sold 1.53 billion euros in 18-month bills at an average yield of 2.436 percent, down from 2.938 percent in the last such auction in February.

The 12-month auction was about two times oversubscribed while demand for the 18-month bills was more than triple that on offer.

The Treasury had aimed to sell between 5.0 and 6.0 billion euros in the short-term debt issue.

Spain's finances and economy, with a jobless rate of just over 20 percent, the highest in the industrialized world, have prompted fears it may need a costly EU bailout like Greece and Ireland.

Moody's rating agency cut Spain's credit rating on March 10 by a notch to "Aa2" and warned it may do so again, pounding financial markets as it raised the alarm over Spanish banking woes and spendthrift regions.

The government has strengthened bank balance sheets, cut spending and pursued economic reforms to allay market jitters over the outlook for Spain's finances.

The lower interest rates, or yields, in Tuesday's bond sale were seen as a sign of improving investor confidence in the country despite the Moody's action.