Europe stocks slide on Portuguese bank woes

 People withdraw money from ATM machines in a Banco Espirito Santo (BES) branch in Lisbon. Portugal’s financial market regulator halted trading in BES shares after they plunged over allegations that its parent company covered up a €1.3bn ($1.8bn) hole in the accounts. BES shares collapsed by 11.54% to just €0.54 yesterday, when trading was suspended.

AFP/London

European stock markets fell back yesterday on the back of weak industrial output data and a growing crisis at Portugal’s largest lender, Banco Espirito Santo.

London’s FTSE 100 lost 0.68% to close at 6,672.37 points, after the Bank of England (BoE) held interest rates as expected at a record-low 0.50%.

Frankfurt’s DAX 30 slid 1.52% to 9,659.13 points, and the Paris CAC 40 dropped by 1.34% to 4,301.26.

Milan’s FTSE Mib was down 1.90%, Madrid’s Ibex 35 fell 1.98% and in Lisbon, the PSI 20 tumbled 4.18%.

Gloomy market sentiment turned completely sour after Portugal was rocked by a growing crisis surrounding Banco Espirito Santo (BES), the nation’s biggest bank by market capitalisation.

Portugal’s financial market regulator halted trading in BES shares after they plunged over allegations that its parent company covered up a €1.3bn ($1.8bn) hole in the accounts.

In reaction to yesterday’s news, BES shares collapsed by 11.54% to just €0.54 when trading was suspended.

The shock also sent the yield on 10-year Portuguese bonds higher, as investors feared widespread fallout from the scandal.

At the close of trading, it stood at 3.985%, compared with 3.771% a day earlier.

Earlier yesterday meanwhile, France and Italy became the latest big European economies to post poor industrial output data, with Italian production falling the most since November 2012.

Germany and Britain have already issued disappointing figures for May, raising fears that Europe’s economic recovery may be stalling.

On Wall Street US stocks followed European peers downwards in early trading, with the Dow Jones Industrial Average giving up 0.65% to 16,875.54.

The broad-based S&P 500 slumped 0.60% to 1,961.02, while the tech-rich Nasdaq Composite Index slid 0.80% to 4,383.

On the foreign exchange market in London, investors digested the BoE’s latest decision to maintain rates at 0.50%, where they have stood since March 2009.

Britain’s central bank also opted to maintain the level of cash stimulus in the economy at £375bn ($641bn, €471bn). Both decisions were in line with market expectations.

The British pound dropped to $1.7124 from $1.7159 the day before.

The pound had jumped last Friday to a six-year high of $1.7180 on expectations that London could raise rates in the coming months.

The European single currency fell to $1.3601 from $1.3642 late on Wednesday in New York. The euro also eased to 79.42 pence from 79.50 pence.

In commodity deals yesterday, haven investment gold soared to a near four-month high at $1,344.90 per ounce — a level last seen on March 17 — before easing slightly to $1,340.25.