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Portugal's political turmoil slams markets

Portugal's political turmoil slams markets
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The deepening political crisis in Portugal slammed the country’s financial markets on Wednesday.

At one stage the main stock market index lost six percent, with banks again losing the most value. It finished the session down 5.3 percent, its worst performance in three years.

After the coalition started to fall apart on Tuesday, shares fell more than one percent in 15 minutes just as trading was ending.

Worries about the continued viability of the country’s bailout plan meant the amount of interest Lisbon is having to offer to borrow money also shot up.

Joao Queiroz, a trader with in Lisbon, said: “Given what’s happened in the last 48 hours, the majority of investors are attributing a greater risk premium to financial assets issued in Portugal, particularly fixed income bonds, so the interest on bonds due to mature in ten years time rose from close to six percent which is where it was two weeks ago, and now they are trading at around eight percent.”

There was a sell-off of shares around Europe on fears of a new flare up in the eurozone’s debt crisis. Investors were particularly shy of banks and insurance companies.

They were already nervous because of doubts over Greece’s ability to fulfil the conditions of its bailout, as well as the unrest in Egypt and as the latest data from China revealed further signs that the world’s second-largest economy is losing momentum.

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