* Finance minister says no threat to financial stability
* Portugal Telecom shares fall sharply, Oi also hit
* Banco Espirito Santo falls 11 pct, ESFG 18.5 pct (Adds finance minister comment)
By Robert-Jan Bartunek and Andrei Khalip
BRUSSELS/LISBON, June 27 Luxembourg's justice authorities have begun an investigation into three holding companies of Portugal's Espirito Santo banking family, the biggest shareholder in Portugal's largest listed bank which bears their name.
A spokesman for the Luxembourg authorities said the investigation was launched on May 22 over alleged breaches of company law by the three Luxembourg-registered firms. He declined to give any further details about the investigation.
"The judge is investigating this now and during this time no further statements can be made," the judicial spokesman said.
Shares of Banco Espirito Santo (BES) and ESFG - the only listed holding company of the three - as well as Portugal Telecom, which acknowledged it had bought debt from another family holding company, fell on Friday.
Meanwhile, Finance Minister Maria Luis Albuquerque said the bank was well-capitalised and the government saw no threat to financial stability and public accounts.
"The government has no information that would lead us to believe that we have potential financial instability problems, despite a lot of noise," she told a parliamentary committee.
The three Luxembourg registered companies targeted by authorities there - Espirito Santo International SA, Espirito Santo Control SA and Espirito Santo Financial Group SA (ESFG) - are all part of a cascading ownership structure.
BES had warned last month of "material irregularities" at one of the companies, Espirito Santo International.
Nobody was immediately available to comment at the companies when contacted by Reuters.
BES, controlled by the Espirito Santo family before a rights issue this month, is also the largest shareholder in Portugal Telecom, with a 10 percent stake. In turn, Portugal Telecom holds about 2 percent of Banco Espirito Santo.
Shares in Portugal Telecom fell 5.6 percent. The company said it had bought 900 million euros in commercial paper issued by RioForte, another holding company of the Espirito Santo family.
Portugal Telecom subsequently merged with Brazil's Oi .
Analysts at Banco BPI said in a note: "Given the irregularities found at Espirito Santo International which holds 100 percent of RioForte, the difficulties the Espirito Santo Group faces to refinance itself and the controversy around BES and the group's holdings, we see reputational risks for PT/Oi".
Oi shares in Brazil were down 5.2 percent.
"PT could ... get itself into possible scrutiny by regulators," Albino Oliveira, an analyst at Fincor brokers in Lisbon, said. A PT spokesman said the paper had been bought at an attractive rate and "bearing in mind our good experience of treasury investments in Banco Espirito Santo", but declined further comment.
Banco Espirito Santo shares fell 11.4 percent. The far less liquid shares in ESFG slumped 18.5 percent.
BES had warned of irregularities at Espirito Santo International (ESI) before its rights issue in May, citing reputational risks because the bank had sold commercial paper issued by ESI through its branch network to retail investors.
BES's share issue nevertheless drew strong demand.
The finance minister said the capital increase had contributed to financial stability and the bank had "a robust capital ratio", while the debt sold was covered by the bank's financial guarantees, which eliminates the risk of non-payment.
BES shares have been hit in the past week by signs of discord within the founding family that add to uncertainties about whether regulators and shareholders will accept a new CEO and governance plan as proposed by BES's main shareholder.
CEO Ricardo Espirito Santo Salgado agreed a week ago to step down and to be replaced by his chief financial officer.
Ratings agency Moody's on Thursday placed BES's Ba3 credit rating on review for downgrade, citing corporate governance concerns. (Reporting by Robert-Jan Bartunek, Andrei Khalip, Filipa Lima and Daniel Alvarenga Editing by Jane Merriman and David Holmes)