Germany's finance minister, Wolfgang Schäuble, will meet his Spanish counterpart, Luis de Guindos, for crisis talks on Tuesday amid fears that spiralling bond yields in the eurozone's fourth biggest economy will force it to seek a €300bn bailout from the European Union and the International Monetary Fund.

Interest rates on Spain's 10-year borrowing rose to 7.59% – the highest since the euro was created – and the stock market in Madrid fell by 5% in morning trading following fresh bad news about the financial health of the country's regions.

Hints from politicians in Berlin that Germany is preparing the ground for Greece to leave the single currency also unsettled markets, with hefty falls in equity prices on European bonuses and the euro under pressure on the foreign exchanges. London's FTSE 100 index was down 100 points at midday, at 5551.

Dealers were unimpressed by de Guindos's claim that Spain would not become the fourth eurozone country to require a formal bailout, after Murcia on Sunday became the second Spanish region to request financial assistance from the government. The Spanish finance minister categorically denied that a bailout was imminent, but media reports from Spain suggest up to six regions could require financial aid, with Catalonia next in line.

"What began as a Spanish banking bailout looks to be moving rather quickly towards a possible sovereign bailout. Overlay that with increasingly negative news on Greece and you get a fairly negative mix, so the path of least resistance for the euro is down," said Jeremy Stretch, currency strategist at CIBC.

The cost of bailing out Spain would dwarf the packages already agreed for the three smaller eurozone countries – Greece, Ireland and Portugal – and would heap pressure on monetary union's third biggest economy Italy.

Officials from the EU, the European Central Bank and the IMF arrive in Athens on Tuesday to push for new austerity measures in return for financial help, but a leading German conservative prompted renewed speculation of Greece leaving monetary union when he said the new coalition government headed by Antonis Samaras should start paying half of its pensions and state salaries in drachmas as part of a gradual exit.

Alexander Dobrindt, general secretary of the Christian Social Union (CSU), the Bavaria-based sister party of Chancellor Angela Merkel's Christian Democrats (CDU), has long argued that Greece would be better off outside the eurozone.

"With Greece we have reached the end of the road. There must not be any further aid. A country which does not have the will to fulfil the conditions, or is not able to do so, must get a chance outside the euro," Dobrindt told the daily Die Welt.