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Banking sector causes collapse of Spanish stocks

06-30-2010 14:02 BJT

MADRID, June 29 (Xinhua) -- The Spanish stock market suffered this year's third major downfall on Tuesday (-5.45 percent) as a result of the banking sector's liquidity problems. Fears of a double dip world recession grew sharply ahead of U.S. jobs report to be released on Friday.

Once again, banks caused the Ibex-35 to sink under 9,200 points. Santander and BBVA shares fell by 6.8 and 7.2 percent respectively, whilst Bankinter saw the value of its shares reduced by 8 percent.

The Spanish financial sector was once more under close scrutiny by the international press on Tuesday when its liquidity problems were highlighted. According to the Financial Times, Spanish banks have been exerting pressure on the European Central Bank (ECB) ahead of Thursday's redemption of 442 billion euro (539.7 billion U.S. dollars) granted to European banks at an interest rate of 1 percent one year ago.

The London-based journal reported that Spanish banks accuse the ECB of "absurd" behavior if the European monetary authorities finally decide to terminate their emergency-cash policies. The one- year credits were a novel policy introduced by the ECB as an extraordinary support measure during the financial crisis.

Given the time-length of these loans, the Financial Times reports, the ECB will not renew them since they may distort markets and condition the ECB's monetary policies. The ECB is even more reluctant to renew the loan scheme in the current climate, with the ongoing sovereign debt crisis still unresolved.

Nevertheless, the ECB has offered a conciliatory statement assuring that it will do everything in its power to assure the payment of credits will be met satisfactorily.

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