LONDON (Bloomberg) - BP plc. would face an extra $500 million a year in interest costs to raise $10 billion in the bond market as it seeks to ensure it has enough cash to cope with the biggest oil spill in US history.

The average yield on BP's bonds has surged to 539 basis points, or 5.39 percentage points, more than benchmark rates, from 41 basis points before the Gulf of Mexico oil rig explosion on April 20, according to Bank of America Merrill Lynch index data. BP, the target of more than 230 lawsuits, is talking to banks about doing its first bond issue since March, according to people familiar with the matter, who declined to be identified before a deal is agreed.

BP said today that the cost of its response to the oil spill has risen to $2 billion, or $33 million a day, including containing the leak, drilling relief wells and paying claims. The London-based company may offer an initial $10 billion of notes as soon as this week as part of a $50 billion fundraising including loans and asset sales, the Sunday Times reported, without saying where it got the information.

"BP doesn't want to do a million of funding here and a million of funding there," said Simon Ballard, senior credit strategist at RBC Capital Markets in London. "It needs to do a large-size transaction to show that it's being aggressive in facing up to its responsibilities."

A BP spokesman, who declined to be identified, would not comment when contacted yesterday. Andrew Gowers, the company's head of communications in London, said yesterday that BP needs "to have an unusually strong cash position".

BP is also seeking at least $5 billion in loans to meet compensation payments and has asked lenders for proposals on one-year credit lines, according to bankers approached by the company. It's arranging the transactions individually with banks, said the people, who declined to be identified. These loans are in addition to BP's $10.5 billion of undrawn lines. The company paid an average one percent interest on $20.6 billion of floating-rate bank debt in dollars last year, according to its 2009 annual report.

BP is not planning a bond sale and will instead rely on extending these bank credit lines, Reuters reported today, citing people familiar with the situation that it did not name.

The company has sufficient cash to cover most of the clean-up costs of the oil slick, Reuters reported one of the people as saying.