Europe Shares Sharply Lower Amid Spain Downgrade

European stock markets were sharply lower on Wednesday, as Spanish shares tumbled and bond yields surged after the country’s debt was pushed further into junk late the prior day.

The Stoxx Europe 600 index (XX:SXXP) -1.00% dropped 1% to 241.83.

Spain’s IBEX 35 (XX:IBEX) -1.00% moved into negative territory for a third day, dropping 2.1% to 6,119.80. Pressure remained on the country as Egan Jones Ratings Co., on Tuesday after the market closed, downgraded Spain’s debt to B from BB- with a negative outlook.

Troubled lender Bankia SA (ES:BKIA) -11.41% dropped the most in the index, off 11%, as media reports said the government’s plan to recapitalize the ailing bank with government debt was rejected by the European Central Bank.

Other banks followed: Bankinter SA (ES:BKT) -1.49% lost 3.2%, while Banco Santander SA (ES:SAN) -0.98% STD -4.77% slid 2.5% and BBVA SA (ES:BBVA) -0.43% BBVA -5.07% gave up 2.3%.

Yields on benchmark 10-year Spanish government bonds (ES:10YR_ESP) +1.19% rose 10 basis points to 6.492%, inching closer to the closely watched level of 7%.

Concerns about Spain drove the euro EURUSD -0.4308% down 0.1% to 1.2464 against the dollar.

Elsewhere, banks were also lower. In London, heavyweight HSBC Holdings PLC (UK:HSBA) -1.59% HBC +0.42% slipped 1.1%, while Royal Bank of Scotland Group PLC (UK:RBS) -1.45% gave up 2%.

The FTSE 100 index (UK:UKX) -1.07% traded 0.9% lower at 5,342.62, further weighed by oil firms as oil prices slipped below $90 a barrel. BP PLC (UK:BP) -1.17% BP -0.65% fell 1% and BG Group PLC (UK:BG) -1.56% lost 1.4%.

In France, oil group Total SA (FR:FP) -0.99% TOT +0.21% slipped 1.2%, adding pressure on the CAC 40 index (FR:PX1) -1.18% , which was off 1.3% at 3,045.51.

German stocks also headed for losses, with the DAX 30 index (DX:DAX) -0.96% down 0.8% at 6,346.36. ThyssenKrupp AG (DE:TKA) -1.46% declined 1.6%, while car makers BMW AG (DE:BMW) -1.76% and Volkswagen AG (DE:VOW) -1.68% (DE:VOW3) -1.64% lost 1.3% and 1.1% respectively.