Hobbit takes in a Spanish city (6)
I believe the answer is:
bilbao
'spanish city' is the definition.
'hobbit takes in a' is the wordplay.
'hobbit' becomes 'bilbo' (Bilbo Baggins, a hobbit from The Lord of the Rings).
'takes in' means one lot of letters goes inside another.
'bilbo' enclosing 'a' is 'BILBAO'.
(Other definitions for bilbao that I've seen before include "Basque city" , "Spanish town" , "Spanish city, home to the Guggenheim Museum" , "Spanish Basque port" , "Spanish Biscay port" .)