BRUSSELS/PARIS (Reuters) – European Union leaders moved closer yesterday to making public the results of stress tests on banks in a drive to restore market confidence after Spain boosted the euro zone with a successful bond sale.

Germany, which had been sceptical about revealing details of tests on the financial health and risk exposure of its banks, dropped its objections after France and Spain came out in favour of a move the Obama administration has pressed Europe to take.

"Germany is positive on the idea of publishing the results of EU stress tests," said Finance Ministry spokesman Michael Offer. "We see that markets are unsettled and that confidence among banks has taken a hit."

European Central Bank policymakers and the executive European Commission added support for releasing the results on a bank-by-bank basis so investors can judge which institutions may need extra capital to cope with potential liabilities due to the euro zone debt crisis.

The run-up to yesterday's EU summit in Brussels was dominated by concern that Spain, the euro zone's fourth biggest economy, might be forced to tap a 500 billion euro ($613.2 billion) EU safety net set up to halt contagion after last month's bailout of Greece.

But leaders said they had no plans to discuss Spain's woes at their one-day meeting. \

Global markets received a boost when Madrid succeeded in selling 3.5 billion euros in 10- and 30-year bonds. A Spanish Economy Ministry source said the treasury does not need to sell any more debt to meet a 24 billion euro repayment crunch in July. The euro shot towards $1.24, its highest level in three weeks, and the premium investors demand to hold Spanish bonds rather than German benchmark issues narrowed from a record high of over 230 basis points hit early yesterday.

European shares gained for a seventh straight session.

"The results of the Spanish auction are helping restore confidence and that's also supporting the euro," said Francois Chevallier, strategist at Banque Leonardo in Paris.

Spain, France and other euro members have announced a flurry of spending cuts and structural economic reforms in recent days, helping the euro recover from four-year lows against the dollar.

The publication of bank stress tests could also help calm jitters as long as the results don't reveal unexpected holes in banks' balance sheets. An EU source said the tests would not be released this month, but both France and Spain said the sooner they were out there, the better.

"If someone suspects you have an illness, it's all very well to say 'No, no, no I'm very healthy,' but it's even better if you say 'OK fine, take my blood and make sure that I'm healthy'," French Economy Minister Christine Lagarde told Reuters Insider television.

Without waiting for an EU decision to publish the findings, a Spanish government source said Banco Santander, Spain's largest bank, had the best rating so far in ongoing European stress tests.

Germany, home to regional Landesbanken that were hit hard by the global financial crisis and have yet to fully recover, has been concerned publication of the results could force it to recapitalise ailing institutions.

Such a move would be highly unpopular among the public and could further dent the popularity of Chancellor Angela Merkel's fractious centre-right coalition.

At their summit, the EU leaders were moving towards agreement on ways to strengthen budget discipline and economic policy coordination – steps seen as vital to prevent a repeat of the debt crisis which started in Greece.

Merkel has won the support of French President Nicolas Sarkozy for many of her key demands, including the suspension of EU voting rights for persistent budget violators, changes to the bloc's treaty if necessary, and coordination of economic policy among all 27 EU states, not just the 16 in the euro area.

The leaders also tried to find a common European stance on a bank levy and financial transaction tax ahead of a G20 meeting in Canada on June 26-27.

ECB Governing Council member Axel Weber said, however, that harmonising the bank levy across the G20 looked increasingly unrealistic and warned EU leaders not to introduce permanent, pre-financed mechanisms to rescue euro members. He also said governments needed to be prepared to provide a financial backstop for banks before stress test results were published.

The crisis has forced countries like Spain and France to bring forward long-delayed plans to reform their labour market and pension system.

Greece is also pressing ahead with a draconian austerity programme designed to turn around its uncompetitive economy and bring down its swollen debt and deficit. The EU, International Monetary Fund and ECB, which are overseeing a 110 billion euro rescue for Greece, said yesterday its reforms were "on track" as Athens reported a first-quarter surge in unemployment to ten-year highs.

Trade unions across the bloc are fiercely opposed to the wave of budget cuts and are vowing to step up protests over the coming months.