April 13, 2012, 12:51 p.m. ET Spanish Stocks Plunge Again By SARA SJOLIN, WSJ
LONDON—Spanish stocks plunged to a three-year low on Friday, leading European stock markets lower, as the country's banks sharply increased their borrowing from the European Central Bank.
A disappointing report on Chinese growth also undercut the buying appetite of investors, as did a surprise decline in a U.S. consumer-sentiment gauge.
The Stoxx Europe 600 index fell 1.5%, bringing losses for the week to 2.2%.
Spain's benchmark the IBEX 35, tumbled 3.6% to 7250.60, a level not seen since March 2009, after data on ECB borrowings underscored the sector's dependence on central-bank liquidity. The losses brought the week's slide to 5.4%, part of a 15% skid so far this year. Banking shares dropped and bond yields jumped.
The Bank of Spain said the country's banks nearly doubled their borrowing in March from the European Central Bank to €316.3 billion ($416.7 billion) against February, reawakening worries about their difficulties in borrowing through the wholesale market.
"The fear is that Spanish banks are on the verge of insolvency because of their exposure to the domestic real-estate market. If the real-estate market drops another 15%, all Spanish banks EXCEPT [Banco] Santander will basically be wiped out. So the ECB will have to help these banks recapitalize," said Christian Tegllund Blaabjerg, chief economist at FIH Erhvervsbank.
The country's 10-year yield climbed 0.17 percentage point to 5.99%. Analysts have feared that a breach above 6% could accelerate a move to 7%, a level they say the country can't afford to borrow over the longer term.
Investors also dumped bonds in Italy, another financially stressed country, pushing 10-year yields there up 0.21 percentage point to 5.52%.
Bank shares in both Spain and Italy tumbled. Santander SAN.MC -6.65%slid 6.6%, Bankinter BKT.MC -5.89%lost 5.9% and BBVA shed 3.1%, all in Madrid. In Milan, Banca Popolare di Milano PMI.MI -8.22%slumped 8.2% and UniCredit UCG.MI -6.01%fell 6%.
"There's a lot of fear that the Spanish situation will spill over to Italy. The Spanish problems are containable within the euro-zone rescue funds, but the funds are not big enough to also bail out Italy," Mr. Blaabjerg said.
Worries were accentuated by a calendar published by Moody's Investors Service for the conclusion of its review of European banks. Traders are seeing the review-for-downgrades as a major potential negative catalyst for financial shares. The expected timetable kicks off with the review of Italian banks next week and Spanish banks the week commencing April 23.