Barclays Bank has agreed to buy Spain's Banco Zaragozano for 1.14bn euros ($1.3bn; �808m).

The deal, which requires the approval of Spanish regulators, will create Spain's sixth biggest banking group when combined with Barclays' Spanish unit.

"This gives them better scale in terms of number of branches... a decent customer base and some obvious synergy potential, which they believe will be worth 100m euros per annum before tax," said Tom Rayner of investment bank Dresdner Kleinwort Wasserstein.

Barclays has been eager to extend its presence in continental Europe in order to reduce its dependence on the highly competitive UK market for banking services.

Banks in Spain, which has one of the European Union's strongest economic growth rates, are considered an attractive target.

Barclays shares were down 4.2% at 409 pence by about 1430 GMT despite assurances from the bank that the acuqisition would not jeopardise its share buy-back plans.

Shares in Banco Zaragozano jumped by more than 12% to 12.56 euros.