Wednesday, Apr 18, 2012

--Spain's IBEX plunges; banks under pressure

--Italian stocks also suffer heavy losses

--Spanish, Italian bond yields turn higher

By Michele Maatouk

Of DOW JONES NEWSWIRES

LONDON (Dow Jones)--European stocks extended losses Wednesday with Spain's benchmark IBEX-35 by far the worst regional performer as worries over the country's fiscal position spilled into the corporate sector.

By 1415 GMT, the IBEX-35 was significantly undperforming its European peers, down 3.3% at 7128.70, having earlier fallen below the 7100 mark for the first time since March 2009. Italy's FTSE MIB trailed close behind, down 1.9% at 14,657.68.

The benchmark Stoxx Europe 600 index was down 0.4% at 258.43. London's FTSE 100 index was down 0.2% at 5753.70, Frankfurt's DAX was off 0.8% at 6752.49, and Paris's CAC-40 index was 1.3% lower at 3251.33.

Spanish banks took a beating, with Banco Santander down 3.2%, and Banco Bilbao Vizcaya Argentaria off 2.5%, after the Bank of Spain said commercial banks have notified they need EUR29.08 billion worth of extra provisions and EUR15.57 billion worth of core capital.

In addition, data released Wednesday showed that the country's bad loans ratio rose to 8.16% in February compared with 7.91% in January. The Stoxx Europe 600 banks index fell 1.4% to 271.32.

Corporate news also weighed heavily on Spain's stock market. Iberdrola slumped 7.7% after Actividades de Construccion y Servicios said it is selling a 3.7% stake in the company at EUR3.62 a share--a hefty discount to Tuesday's closing price of EUR3.90. ACS dropped 6.4%, after saying it has booked a EUR540 million loss following the hurried sale of part of its stake in Iberdrola.

More losses for Repsol added to the downside for Spanish stocks, after the Spanish government threatened to retaliate in response to Argentina's proposed seizure of a prized unit of Spain's flagship oil company Repsol YPF. Spain's rebuke came after Argentina proposed nationalizing its largest oil-and-gas company YPF SA. Argentina proposed taking 51% of YPF from Spain's Repsol YPF SA at a price that is yet to be determined, leaving the Spanish company with a 6% stake. Repsol shares fell 3.8% Wednesday.

The flight to safety pushed the June bund contract up 37 ticks to 140.33, while in currency markets, the euro lost ground against the dollar. By 1415 GMT, the single currency was trading at $1.3092 from $1.3125 late Tuesday in New York. The euro was also weaker against the pound, fetching GBP0.8176 from GBP0.8243.

Although Tuesday's Spanish bill auction was well received, markets participants noted trepidation ahead of Thursday's more challenging auction of 2-year and 10-year bonds Thursday. The yield on the 10-year Spanish government bond was two basis points lower at 5.85%, but up on the day from an earlier low of 5.72%, while the corresponding Italian yield was four basis points higher at 5.50%.

Meanwhile, the cost of insuring Spanish debt against default rose. Spain's 5-year CDS spread was at 497 basis points, 10 basis points wider from the close on Tuesday, according to data-provider Markit. Worries about Spain's economy are once again driving spreads towards the 500 basis points level it broke on Monday, when its CDS spread reached a record high of 510 basis points.

Italian stocks also suffered heavy losses Wednesday. The Italian government Wednesday slashed its economic growth and fiscal forecasts, saying it won't balance its budget as pledged in 2013, but instead will run a deficit of 0.5% of gross domestic product. It now expects a contraction of 1.2% of GDP this year, from a previous forecast of a 0.5% contraction.

Still, basic resource shares put in a healthy showing. The Stoxx Europe 600 index for the sector was up 1% at 271.32, buoyed by well-received updates from Fresnillo and BHP Billiton. Fresnillo was up 3.2% after reporting better-than-expected first-quarter gold production. BHP Billiton added 1.1%, as investors reacted positively to its quarterly production update, which was broadly in line with expectations.

-By Michele Maatouk, Dow Jones Newswires; +44-20-7842-9447; michele.maatouk@dowjones.com

(END) Dow Jones Newswires

April 18, 2012 10:44 ET (14:44 GMT)