Spain announced deep cuts to its central government budget yesterday as it battles to convince European partners and debt markets it can rein in its budget deficit.

The government said it would make savings of 27 billion euros ($36 billion) for the rest of 2012 from the central government budget, equivalent to around 2.5 per cent of gross domestic product.

The figure includes tax rises and spending cuts of around 15 billion euros announced at the end of December.

The cuts come despite popular resistance - a general strike on Thursday disrupted transport, halted industry and on occasion erupted into violence - and against a grim economic backdrop; Spain is thought to have fallen back into recession in the first quarter and has the highest unemployment rate in the European Union.

'Everyone knows the difficult problem we face in this country, and it calls for special efforts in fiscal consolidation and structural reforms to grow and create employment,' Deputy Prime Minister Soraya Saenz de Santamaria said after weekly cabinet meeting.

The government, which swept to power in November with the largest parliamentary majority in 30 years, has already passed labour market and banking sector reforms to improve competitiveness and reduce wage costs.

Brussels has agreed to let Prime Minister Mariano Rajoy aim for a 2012 deficit equal to 5.3 per cent of gross domestic product, a less demanding goal than the original 4.4 per cent but a substantial improvement on last year's 8.5 per cent.-Reuters