Spain's unemployment rate inches up, checking talk of recovery

MADRID (Reuters) - Spain's already high unemployment rate inched up in the fourth quarter in a bleak reminder of the challenges the country faces as it seeks to cement a fragile economic recovery.

Even though 8,400 fewer people were out of work in the October to December compared with the previous quarter, the unemployment rate rose to 26.03 percent of the workforce, which shrank by 65,000 people to 16.758 million.

The length and depth of Spain's economic crisis has prompted many long-term unemployed to leave the workforce altogether, and the official population fell for the first time in 2012 as immigrants and nationals left the country.

Thursday's fourth quarter statistics office data, compared with analysts' expectations of a rate of 26 percent, confirmed Spain's position as the country with the second highest unemployment rate in the European Union after Greece.

Spain's economy has been in a slump since 2008 when a burst property bubble put thousands of labourers out of work, and the resulting aftershock claimed millions more jobs across the country.

The economy emerged from a two-year recession in the third quarter of 2013 and recent data suggested overall output would expand more than the government's forecast of 0.7 percent this year, fuelling market appetite for the country's debt and listed shares.

Investors have charged back in to Spain's sovereign debt over the last year after pushing it close to taking a sovereign bailout on concerns Madrid could not control its finances. Debt yields fell to near eight-year lows on Wednesday as the sale of a new bond drew bumper demand.

However, the turnaround is leaving many Spaniards in its wake, as the unemployment rate is not expected to fall significantly for years and tighter public debt targets have led to deep austerity measures.

Researchers at the Carlos III University in Madrid expect the unemployment rate to hold above 25 percent this year before inching down to 24.4 percent by the end of 2015.

"The estimates highlight that the reduction of the unemployment rate will be slow, despite any possible consolidation in the economic recovery," Carlos III University researchers said in a note.

While the government has forecast net job creation in 2014, economists at the university were more cautious, saying only that job destruction would practically cease this year while new jobs would be slow to emerge.

(Reporting by Paul Day; Editing by Tracy Rucinski, John Stonestreet)