European banking stocks fall despite Greek vote result

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Last Updated at 16:42 ET

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European banking stocks have fallen sharply despite the victory of the pro-bailout New Democracy party in Greece's elections on Sunday.

While the result raised hopes that Greece would stick to austerity measures and stay in the euro, analysts said that much uncertainty remained.

The fall in bank shares was seen across Europe, with Germany's Commerzbank and France's BNP Paribas both down 4.4%.

Spanish bond yields remained volatile, rising through the 7% danger level.

Wider share indexes were mixed. France's Cac 40 closed down 0.7%, while Germany's Dax was 0.3% higher. Both had earlier risen 1%.

London's FTSE 100 closed up 0.3% after falling in early trading, while in New York, the Dow Jones closed down 0.2%.

Among other banking shares, Deutsche Bank fell 1.1%, while Credit Agricole dropped 3.4%. In the UK, Royal Bank of Scotland dropped 5.0% and Lloyds Banking Group fell 3.6%, making them the biggest fallers on the FTSE 100.

The interest rate on the government bonds of Spain - the eurozone country said to be most at risk of needing a full international bailout in the future - hit another new high. The yield on Spain's 10-year bonds had initially fallen as low as 6.767%, before rising to 7.144%.

Italy's 10-year bond yield also rose, hitting 6.08%, after earlier falling to 5.85%.

Euro slips

The main share indexes of Spain and Italy also fell.

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The question will continue to loom large for Greek people and leaders whether they should try to escape a crushing debt burden by leaving the eurozone”

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Spain's Ibex closed down 3.0%, while Italy's FTSE MIB lost 2.9%.

In the currency markets, the euro was slightly lower against the dollar, at $1.2579 from $1.2637 late on Friday.

Asian shares had earlier posted strong gains, with Japan's Nikkei 225 index and South Korea's Kospi both closing up 1.8%, while Australia's ASX 200 added 1.9%.

Antonis Samaras, the leader of the New Democracy party, said on Sunday that "the Greek people voted today to stay on the European course and remain in the eurozone".

"There will be no more adventures. Greece's place in Europe will not be put in doubt."

'Too euphoric'

Adrian Slack, head of equities at Bastion Capital, said the initial reaction to the Greek election result was "too euphoric".

He added: "Fundamentally, the problems [in Greece and the eurozone] haven't changed."

Peter Schiff, of the brokerage Euro Pacific Capital, added: "How long is it going to take for people to worry about Spain again?"

Spain's borrowing costs have been hitting euro-era record levels, indicating that lenders were concerned about Madrid's ability to repay its debts.

Last week, the ratings agency Moody's cut Spain's credit rating to one notch above "junk".

Yet other analsyts were more optimistic.

Masayuki Doshida, a senior market analyst at Rakuten Securities, said the victory of Greece's New Democracy party had allayed eurozone fears for now.

"There'll be a definite sense of relief spreading around today," said Masayuki Doshida, she said.

Fellow analyst, David Lennox of Fat Prophets, told the BBC that the worst of the Greek crisis could now be over.

"We think that early punters are already taking the view that a floor has been put under the crisis for now," he said.

Contagion concerns

The elections in Greece were being watched closely, not just by eurozone leaders but also investors all across the globe.

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Greece, which is suffering from a sovereign debt crisis, has received two bailouts in the past two years.

It was given an initial package worth 110bn euros (£89bn; $138bn) in 2010, followed by another one agreed last year worth 130bn euros.

However, the EU and IMF have attached tough austerity measures, including state spending cuts, as pre-conditions to those packages.

There have been various demonstrations against these cuts in Greece and the Syriza party had said that it would renegotiate the conditions if it came to power.

It had led to fears that if eurozone leaders and Athens did not agree on the existing terms, Greece may be forced to leave the eurozone.

There were concerns that such a move may spread contagion to other eurozone countries and result in turmoil in the global economy.

However, the BBC's business editor, Robert Peston, said the new Greek government still faced an uphill challenge.

He said that bankers had told him Greece needed "eurozone governments and the European Central Bank to write off a big slug of what they are owed".

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