Spanish stocks fall 5%

Spanish stocks fall 5%
May 5, 2010 - 7:54AM
AFP

The Spanish stock market plunged more than 5.0 per cent on Tuesday on investor fears the Greek debt crisis could spread to other eurozone countries - such as Spain - struggling to contain public deficits.

The benchmark Ibex-35 share index shed 5.41 per cent led by losses in banking stocks amid concern that Spain could be hit with fresh credit downgrades following a cut by Standard & Poor's last week.

The stock market was also hit by market rumours that Spain would ask for 280 billion euros ($A398.58 billion) in aid from the International Monetary Fund, which were dismissed by Spanish Prime Minister Jose Luis Rodriguez Zapatero as "absolute madness".

"These rumours are intolerable," he told a news conference in Brussels.

The head of the OECD meanwhile insisted that the situation in Greece was not comparable to that in Spain or another eurozone state seen as vulnerable, Portugal.

On Sunday, European nations endorsed an unprecedented 110-billion-euro ($A157.62 billion) bailout package to save Greece from bankruptcy and shore up the euro single currency.

Both the Moody's and Fitch agencies said Tuesday they were not reevaluating their rating for Spain, which is currently AAA, the highest possible rating.

"At the moment that I am speaking to you, the rating for Spain is still triple A, with a stable outlook," a Fitch spokeswoman told AFP in Paris.

S&P on Wednesday lowered Spain's long-term sovereign credit rating to AA from AA+ amid fears its recession could further weaken its public finances.

The move on Spain came one day after it cut Portugal's long-term credit rating by two notches and reduced Greece's rating the junk status, the first eurozone country rated less than investment grade since the launch of the euro.

Spain, which has the eurozone's third-largest deficit after Ireland and Greece, was last cut by S&P in January 2009 when its credit rating was lowered one notch from AAA.

Markets are especially sensitive to Spain's fiscal situation because of the size of its economy, which is Europe's fifth largest. European banks also have far greater exposure to Spanish debt than to Greek or Portuguese debt.

While Greece's public deficit was equal to 13.6 per cent of its gross domestic product (GDP) last year, in Spain it was 11.2 per cent.

Greece's debt-to-GDP ratio is 115.1 per cent, compared to just 53.2 per cent in Spain.

Spain will on Thursday issue five-year bonds with a proposed interest rate of 3.0 per cent that will expire on April 30, 2015. It hopes to raise at least two billion euros.

© 2010 AFP

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