Frankfurt: European stocks fell for a third week, the longest losing streak since August, as Spain's rising borrowing costs boosted concern the euro-area has yet to contain its debt crisis, and the US Federal Reserve damped expectations for further monetary stimulus.

Banking shares led declines. Banca Popolare di Milano Scarl and UniCredit slid at least 12 per cent each last week. Peugeot dropped 10 per cent after a report showed US sales of light vehicles rose less than forecast. Cairn Energy gained 3.7 per cent after agreeing to buy Agora Oil and Gas to expand in the North Sea.

The Stoxx Europe 600 Index declined 1.6 per cent to 259.07 last week. The benchmark measure climbed 7.7 per cent in the first quarter, its best performance during the first three months of the year since 2006, as the ECB disbursed €1 trillion (Dh4.89 trillion) in three-year loans to the region's financial institutions and US economic reports beat estimates.

"The fact that Spain is back in the news makes equity investors nervous about where we go from here," said Peter Dixon, global equities economist at Commerzbank in London. "So long as we have some kind of concern to worry about, there are going to be limits to which equities will be able to take off."

Worrying signals

Spanish bonds fell for a third day on April 5, widening the spread between yields on 10-year Spanish and German debt to more than 400 basis points for the first time since December 12.

National benchmark indexes dropped in 16 of the 18 western- European markets last week. France's CAC 40 Index slid 3 per cent, the UK's FTSE 100 Index lost 0.8 per cent and Germany's DAX Index decreased 2.5 per cent.

Spain is in "extreme difficulty," Prime Minister Mariano Rajoy said April 4, raising the possibility of a bailout for the second time last week. The government has widened its budget deficit target to 5.3 per cent of gross domestic product from 4.4 per cent and warned on April 3 that public debt will surge to a record 79.8 per cent of GDP this year.

Spain sold €2.6 billion of bonds, near the minimum target for the sale on April 4. Borrowing costs rose in its first auction since the country said public debt will jump to a record this year. The Treasury had set a range of €2.5 billion to €3.5 billion for the sale.

In the US, the Federal Reserve is holding off on increasing monetary accommodation unless US economic growth falters or prices rise at a rate slower than its 2 per cent target, minutes released from a March 13 policy meeting showed on April 3.

"A couple of members indicated that the initiation of additional stimulus could become necessary if the economy lost momentum or if inflation seemed likely to remain below" 2 per cent, according to the minutes.

The European Central Bank left its benchmark interest rate unchanged at a record low of 1 per cent on April 4. The euro-area's economic outlook remains subject to "downside risks," President Mario Draghi said at a press conference later that day in Frankfurt.

"The remaining tensions in euro-area sovereign-debt markets are expected to dampen economic momentum," he said.