Its ability to raise the short-term money at lower interest rates represents a rare bit of good news for the government, which is facing mounting opposition to its austerity plans.

The Treasury sold €2.6 billion in 12-month bills at an average interest rate of 3.9 percent, down from 5.07 percent in the last such auction on June 19. It also sold €961 million in 18-month bills at a rate of 4.24 percent, which was down from the previous rate of 5.10 percent.

Demand exceeded supply by more than two and nearly four times, respectively.

The auction was closely watched: it was the first since last week's €65 billion deficit-reduction package.

Spain is enacting more austerity in an attempt to convince skeptical investors it has a strategy to deal with its public finances and its banks, which are being bailed out with up to €100 billion in eurozone money.

The response in the markets to the successful auction was inconclusive. While stocks rose about a percentage point, the yield on the country's benchmark 10-year bond was up four basis points to the dangerously high level of 6.82 percent.

As the debt auction was under way, riot police cordoned off the entrance to a sprawling police facility to prevent demonstrating police officers from disrupting a graduation ceremony for some 1,200 cadets about to enter the force.

The demonstrators, which numbered about 100, were protesting the elimination of one of 14 paychecks that most Spanish civil servants get each year. The one being axed comes right before Christmas.

As National Police chief Ignacio Cosido addressed the graduating class and highlighted their task of "guaranteeing harmony, social peace and respect for all citizens rights", police demonstrators in plainclothes a few hundred meters away all but drowned him out by blowing plastic horns. Demonstrators yelled out, calling him "a scoundrel."

The starting salary of a National Police officer is about €1,400, which is slightly above average in Spain. Lorenzo Nebrera, a police union spokesman, said officers get their uniform and service weapon but have to pay for the rest of the equipment, like bullet-proof vests, "handcuffs that work" and flashlights.

"In the end, all these cuts sap morale among the police because they feel that conditions out on the street are more and more dangerous, and if these cuts continue the safety of the police will be jeopardized," Nebrera said. "It is an added risk for a job that is already dangerous."

Nationwide protest rallies against the austerity measures are scheduled for Thursday.