European banking stocks fell sharply Tuesday before starting to rebound, with Unicredit and Deutsche Bank among the early losers, as fears that sovereign debt crises in peripheral euro zone countries might spread into the continent's larger economies and trigger a more widespread banking crisis.
Earlier on Tuesday, Dutch Finance Minister Jan Kees de Jager admitted to reporters at the meeting of European finance ministers that a selective default on Greek debt was no longer off the table.
Markets fear that Italy, the fourth-largest economy in Europe with debt of 120 percent of gross domestic product, will be drawn into the sovereign debt crisis. Unicredit shares were suspended in Milan as they hit limit down early Tuesday morning, but rebounded later in the day. Shares in Intesa San Paolo , the retail bank, continued Monday's downtrend in early trading.
By midday the Italian banks had recovered their losses after the country successfully sold 6.75 billion euros ($9.40 billion) of one-year paper. Yields jumped by 150 basis points to 3.67 percent, the highest level since September 2008. The bid-to-cover ratio was 1.55.
Killik & Co analyst Paul Kavanagh told CNBC.com that renewed fears of a European sovereign debt crisis becoming a fresh banking crisis had been driving the stocks down in the morning.Page 1 of 2 | Next Page