International Monetary Fund expands lending tools

The Precautionary and Liquidity Line (PLL) is designed to help countries with "sound economic fundamentals" meet short-term financing needs.

To qualify, countries must also have "sound policies".

Italy and Spain have seen their borrowing costs spike on fears they may fall victim to the debt crisis.

Earlier on Tuesday, Spain raised €2.98bn ($4bn, £2.6bn) in an auction of three- and six-month bonds, but at much higher yields than in a similar auction last month.

On the three-month bills, the annualised interest rate Spain had to pay more than doubled to 5.11%, from 2.29%. On the six-month bills, they surged to 5.227% from 3.302%.

The PLL replaces the IMF's previous lending facility called the Precautionary Credit Line, and can be used "as insurance against future shocks" as well as to address short-term liquidity needs.

Funding through the PLL will be capped at five times an individual country's contribution to the IMF, known as its quota, for six-month arrangements and 10 times for two-year facilities.

"The reform enhances the fund's ability to provide financing for crisis prevention and resolution," said IMF head Christine Lagarde.

"This is another step toward creating an effective global financial safety net to deal with increased global interconnectedness."