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MADRID (Reuters) - Spain's borrowing costs shot up at a bond auction on Thursday and its troubled banks suffered a double blow, with shares in part-nationalized Bankia diving and 16 lenders - including the euro zone's biggest - having their credit ratings cut. Official data confirmed Spain was back in recession and a newspaper reported a big outflow of deposits from Bankia, but the government said it had taken a fundamental step to strengthen Spain's credibility by agreeing big budget cuts with the country's free-spending regions. ...

ATHENS (Reuters) - Greek voters are returning to the establishment parties that negotiated its bailout, a poll showed on Thursday, offering potential salvation for European leaders who say a snap Greek election next month will decide whether it must quit the euro. The poll, the first conducted since talks to form a government collapsed and a new election was called for June 17, showed the conservative New Democracy party in first place, several points ahead of the radical leftist SYRIZA which has pledged to tear up the bailout. ...

MOSCOW (Reuters) - Russian Prime Minister Dmitry Medvedev warned on Thursday that military action against sovereign states could lead to a regional nuclear war, starkly voicing Moscow's opposition to Western intervention ahead of a G8 summit at which Syria and Iran will be discussed. "Hasty military operations in foreign states usually bring radicals to power," Medvedev, president for four years until Vladimir Putin's inauguration on May 7, told a conference in St. Petersburg in remarks posted on the government's website. ...

PARIS (Reuters) - France's new left-wing government started work on Thursday with pledges to combat excessive austerity but better manage public finances, marking the debut with a 30 percent cut in pay for President Francois Hollande and all ministers. The sizeable wage reduction was endorsed at a first meeting of the 34-minister team, a day after Germany's government awarded rises to its ministers and Chancellor Angela Merkel, whose pay will overtake Hollande's. ...

DUBAI (Reuters) - Al Qaeda chief Ayman al-Zawahri on Thursday urged Saudis to rise up against the kingdom's ruling Al-Saud family, suggesting they draw inspiration from uprisings that have deposed leaders across the Middle East and Africa in the past year and a half. Speaking in a video clip that was posted on an Islamist website, Zawahri, who took over the leadership of al Qaeda after Osama bin Laden was killed in Pakistan just over a year ago, said: "Muslim brothers in the land of the holy mosques, a year has passed since the uprising of the Arab people against their rulers... ...

AMMAN (Reuters) - Syrian President Bashar al-Assad said on Wednesday that countries trying to "sow chaos" in Syria could be infected with it themselves, an apparent warning to Arab Gulf nations that back the insurgency aimed at forcing him from power. Assad's remarks, to a Russian TV channel, came after U.N. staff monitoring an increasingly shaky ceasefire were caught up in an attack that killed at least 21 people, and had to spend a night with rebel forces. ...

MOSCOW (Reuters) - Russian riot police detained a prominent protest leader and five other demonstrators on Thursday as authorities extended a crackdown on Occupy-style protests in central Moscow against newly-inaugurated President Vladimir Putin. In a Moscow square where hundreds of people had gathered, police pulled environmental activist-turned-protest leader Yevgeniya Chirikova into a waiting police van as fellow demonstrators tried to protect her. "What a coward Putin is," wrote Chirikova in one of several frantic Twitter messages on her way to a police station. ...

WASHINGTON (Reuters) - The United States on Thursday suspended sanctions barring U.S. investment in Myanmar in response to political reforms in the poor southeast Asian state, drawing praise from some U.S. lawmakers but criticism from human rights advocates. "Today we say to American business: invest in Burma and do it responsibly," Secretary of State Hillary Clinton said. She appeared with Myanmar's Foreign Minister Wunna Maung Lwin, on his long-isolated nation's first official visit to Washington in decades as ties between the two countries warm rapidly. ...