Portuguese bank woes weigh on European equities

Thu Aug 7, 2014 8:19am EDT

* Concerns over Portuguese banks hits Lisbon market

* FTSEurofirst 300 down 0.2 pct

* ECB keeps rates at record lows

By Sudip Kar-Gupta

LONDON, Aug 7 (Reuters) - Persistent concerns about Portugal's banking system hit the Lisbon stock market on Thursday and weighed on European equities, which were also kept in check by tensions between Western powers and Russia.

The European Central Bank (ECB) kept its main interest rate at a record low, but the decision had been widely expected by investors and did not move equity markets.

Lisbon's benchmark PSI-20 index was down 0.8 percent, underperforming the broader, pan-European FTSEurofirst 300 index which eased 0.1 percent to 1,322.24 points.

Traders said the Lisbon market was hit by fears over the state rescue of Portuguese bank Banco Espirito Santo (BES) , which was hit by financial problems associated with its Espirito Santo founding family.

Investors are concerned that lenders who contribute to a bank recapitalisation fund, through which the state injected 4.9 billion euros to carve out a healthy new bank out of BES, may end up paying a chunk of the rescue bill.

"The prevailing sentiment in Portugal's stock market is gloomy. The negative sentiment towards the banks in general is shared not only by investors but also by the public at large," ActivTrades analyst Ricardo Evangelista said.

European stock markets were also pegged back by tensions between Western powers and Russia.

Russia is banning all food imports from the United States and fruit and vegetables from the European Union, in an escalation of the economic battle with the West set off by the crisis in Ukraine.

Many German companies, such as Adidas, have significant business interests in Russia and could therefore be impacted by sanctions.

Germany's main DAX equity index was flat, close to a near 5-month low hit on Wednesday as the DAX continued to retreat from a record high reached in late June.

"The Russian sanctions are likely to hit Germany, although I think equity market prices could bounce back from here in the near term," HED Capital managing director Richard Edwards said.

Europe bourses in 2014: link.reuters.com/pap87v

Asset performance in 2014: link.reuters.com/gap87v

Today's European research round-up (Additional reporting by Blaise Robinson; Editing by Louise Ireland)

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