* Concerns over Portuguese banks hits Lisbon market
* ECB keeps rates at record lows
* Ukraine/Russia sanctions keep stock markets on back foot
* FTSEurofirst 300 falls 0.7 pct to 1,314.27 points
By Sudip Kar-Gupta
LONDON, Aug 7 Concerns about Portugal's banking
system and tensions between Western powers and Russia pulled
down European stock markets on Thursday.
The European Central Bank kept its main interest rate at a
record low 0.15 percent, but the decision had been widely
expected by investors and did not move equity markets.
Lisbon's benchmark PSI-20 index closed down 2.3
percent, underperforming a 0.7 percent decline on the
pan-European FTSEurofirst 300 index and a 1.2 percent
fall on the euro zone's blue-chip Euro STOXX 50 index
Traders said the Lisbon market had been hurt by fears over
the state rescue of the Portuguese bank Banco Espirito Santo
(BES), which has been 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 has injected
4.9 billion euros ($6.5 billion) to carve 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,"
said ActivTrades analyst Ricardo Evangelista.
BACKDROP OF ECB SUPPORT
European stock markets were also pegged back by tensions
between Western powers and Russia.
Russia imposed a one-year ban on Thursday on all imports of
meat, fish, dairy, fruit and vegetables from the United States,
the European Union, Canada, Australia and Norway, escalating the
economic battle with the West set off by the crisis in Ukraine.
Many German companies have significant business interests in
Russia and could therefore be affected by sanctions.
Germany's main DAX equity index fell 1 percent,
continuing its retreat from a record high reached in late June.
HED Capital managing director Richard Edwards expected the
DAX to bounce back soon from those lows, however, with European
stock markets still supported by economic stimulus measures from
the European Central Bank.
ECB President Mario Draghi reiterated on Thursday that the
ECB still had the option of using "quantitative easing" (QE) - a
means of injecting more liquidity into markets by buying assets
such as government bonds - to help the overall economy.
Dan Ison, European equities fund manager at Threadneedle
Investments, said the backdrop of support from the ECB, along
with better corporate profits and more merger and acquisition
activity, would support European stock markets.
"Companies in Europe outside of the financial sector have
strong balance sheets and cash flow, leading to the prospect of
further dividend growth, cash returns and merger and acquisition
activity," he said.
(1 US dollar = 0.7495 euro)
European 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 Kevin