* FTSEurofirst 300 down 1.2 pct, Euro STOXX 50 down 1.3 pct
* Spain's Bankia down 14.1 pct on deposit run fears
* Euro zone banks index down 2.7 pct to all-time low
By Francesco Canepa
LONDON, May 17 European shares hit multi-month
troughs and a key banking index its lowest mark ever on
Thursday, falling for a fourth straight session as an escalating
banking crisis in Spain fuelled broader concerns about a euro
Shares in nationalised Spanish bank Bankia fell
14.1 percent following a newspaper report - denied by the
government - that customers had withdrawn 1 billion euros ($1.27
billion) from the lender over the past week, sparking
speculation about a run on the troubled bank.
The El Mundo report added to fears that an expensive,
government-led reform of the Spanish banking sector would push
the country's financing costs - also driven higher by undimmed
concerns that Greece could quit the euro - to unsustainable
"The contagion risk exists and it is real," a London-based
banking analyst said. "While the noise of the day is around a
possible run on banks deposits, I think a run on the country has
been going on for months in the debt markets and private capital
is already exiting Spain."
Spain's benchmark Ibex 35 index fell 1.1 percent to
its lowest level since 2003 and the country's medium-term
borrowing costs rose sharply at a bond auction, while data
confirmed the country had slipped back into recession during the
The pan-European FTSEurofirst 300 closed 1.2
percent lower at 981.43 points while the Euro STOXX 50 index
shed 1.3 percent to 2,146.91 points, hitting fresh five- and
six-month closing lows, respectively.
The declines pushed more indexes into "oversold" territory
on their 14-day Relative Strength Indexes and the valuation
level of the euro zone blue-chip index fell to a near five-month
low of 8.5 times 12-month forward earnings, Thomson Reuters data
But chartists suggested there was scope for further falls.
"The market is taking us down very slowly, which shows there
is no panic... and there are still people who are long," Valerie
Gastaldy, head of Paris-based technical analysis firm Day-By-Day
"This means you don't have a big enough short base to fuel a
major rebound and the decline is likely not over yet."
The Euro STOXX 50 index was facing technical support levels
at around 2,065 and 1,936 points, corresponding to lows hit in
November and September, respectively.
The euro zone blue chip index is down 3.6 percent since
elections in Greece earlier this month delivered no clear
majority and parties opposing the terms of an international
bailout for the country gained popularity, raising the prospect
of the country's exit from the euro zone.
Euro zone banks were regarded as most at risk in case of a
Greek exit from the euro zone, suffering both from direct losses
on their holdings of Greek debt and from tensions in the
wholesale funding market and the risk of deposit runs.
The STOXX 600 Euro zone banking index fell 2.7
percent to an all-time trough of 79.41 points.
"Euro stress is back," Trevor Greetham, asset allocation
director and portfolio manager at Fidelity Worldwide Investment,
said in a note to clients. "A lack of policy coordination is
raising fears of a Greek euro exit and contagion to other
Fidelity's Investment Solutions Group, which manages $42.9
billion of assets, was very underweight continental European
stocks as a "hedge" against a scenario in which an escalating
euro zone crisis derailed economic recovery.
The strategy remained bullish on global equities, with
"overweight" stances on North American and UK stocks, on hopes
the economic cycle would continue to improve from last
September's lows, albeit with underperformance in Europe.
While U.S. economic indicators have generally been upbeat
recently, expectations of a steady recovery in the United States
were dealt a blow on Thursday when data showed factory activity
in the U.S. mid-Atlantic region unexpectedly contracted in May
to its weakest in eight months, suggesting growth in the world's
largest economy was still fragile.
U.S. stock indexes extended losses after the data and were
trading between 0.5 percent and 0.6 percent lower by the