Europe stocks fall; Spain plunges on debt worries
FRANKFURT (MarketWatch) -- European stocks posted broad-based losses Friday, with Spanish equities plunging as government bond yields soared on renewed fears the country could be forced to seek a full-fledged sovereign bailout due to its debt burden.
The Stoxx 600 Europe index (SXXP) fell 1.4% to close at 258.17, paring the benchmark's weekly gain to 0.8%.
Analysts pointed to a combination of factors, including a decision by the Valencia regional government to seek a bailout from Spain's central government as well as revised economic forecasts by Spain's government.
"The news out of Spain prompted investors to focus their attention away from the QE3-or-no-QE3 argument for some good old risk-off trading," said Neal Gilbert, strategist at GFT, in emailed comments, referring to speculation over whether the U.S. Federal Reserve will embark on a third round of quantitative easing, or QE3.
Spanish bonds tumbled, sending the 10-year yield (10YR_ESP) up more than a quarter of a percentage point to 7.23%, according to electronic trading platform Tradeweb. The carnage was more profound at shorter maturities, with the two-year yield (2YR_ESP) soaring more than half a percentage point to 5.70%.
Against this bearish backdrop, Spain's IBEX 35 index (IBEX) plunged 5.8% to 6,246.30.
Strategists said market participants also registered disappointment with provisions of a bailout plan for Spanish banks approved by euro-zone ministers Friday. For now, liability for the package, which is expected to total as much as 100 billion euros ($123 billion), remains with the Spanish government.
That "will do nothing to break the 'vicious circle between banks and sovereigns' that EU policy makers asserted was 'imperative to break' in the statement that followed their June 29" summit meeting, wrote strategists at Capital Economics.
Earlier this week, markets focused on generally stronger-than-expected corporate earnings, uncertainty over the global outlook and the debate over whether the U.S. central bank is likely to provide additional stimulus.
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