By Julien Toyer MADRID (Reuters) - Spain has made strong progress in fixing its economy but needs to do more to put millions back to work and shield its fragile banks from recession, the International Monetary Fund said on Wednesday. Echoing European Commission recommendations made last month, the IMF said the government should further reform labor laws to make it easier for firms to modify shifts or reduce wages rather than dismiss workers and cut taxes to promote job creation.

Spain's biting recession may end soon but the outlook is tough and Madrid must do more to battle the country's unacceptably high unemployment rate, the IMF warned Wednesday. Spain's economy, still reeling from a 2008 property market crash, fell into a double-dip recession in 2011 and the unemployment rate has since soared to more than 27 percent. Prime Minister Mariano Rajoy's conservative government has pursued an austerity policy even in the face of mass protests in the streets, but it now says the recession is close to bottoming out.

German investor sentiment rose slightly in June, on firming hopes for a gradual recovery in Europe's biggest economy in the second half of the year, the ZEW economic institute said on Tuesday. Its closely watched index rose 2.1 points from May to 38.5. This was better than expected by analysts questioned by Dow Jones Newswires, who had forecast an index of 38.1. "The financial market experts are sticking to their assessment: The German economy is likely to gain momentum in the second half of 2013," said ZEW president Clemens Fuest in a statement.

Spain's short-term borrowing costs rose sharply Tuesday as the Treasury raised 5.038 billion euros ($6.7 billion) in an auction of six- and 12-month bills, reflecting renewed investor concern over the ability of the recession-hit country to repay its debts. The Treasury sold 1.087 billion euros' worth of six-month bills with an average yield of 0.821 percent, up from 0.492 percent from the last similar auction held on May 14.