EU STOCKS hit by political crisis in Portugal

Europe stocks tumbled Wednesday as political turmoil in Portugal re-awakened sovereign-debt worries, triggering sharp gains in bond yields for that country and Spain.

That compounded a day that featured turmoil in Egypt and downbeat data from both China and the U.S.

A ratings downgrade from Standard & Poor’s also knocked shares in three of Europe’s biggest banks.

The Stoxx Europe 600 index fell 1.1% to 284.10.

Atop of the worry list were fears of another crisis in Europe and concerns that Portugal may be facing a new government and financial credibility could be at risk. Reuters reported more ministers may be ready to resign in Portugal on the heels of two ministers who resigned in the past 48 hours.

The Portugal PSI 20 index spent much of the day nearly 6% lower at around 5,220.45, reaching levels not seen since last November.

Bank stocks plunged, with Banco Comercial Portugues SA shares sinking 14% and Banco Espirito Santo SA tumbling 12%. The yield on Portugal’s 10-year government bond shot above 7%.

Prime Minister Pedro Passos Coelho said he will not step down after Foreign Minister Paulo Portas resigned Tuesday afternoon in protest over the country’s austerity policies. On Monday, the country’s finance minister, Vitor Gaspar, stepped down. The president of the European Commission, José Manuel Barroso, said the crisis risks jeopardizing the “financial credibility” of Portugal.

Banks in Portugal were not the only ones suffering. Shares of Barclays PLC and Deutsche Bank AG dropped more than 2% each and Credit Suisse Group AG fell 3.7% after Standard & Poor’s lowered its long-term ratings on those banks.

Data in Europe also did not help sentiment. Markit data released Wednesday showed the final euro-zone services business activity index cut to 48.3 in June, from an initial reading of 48.6. The composite output index for the region was cut to 48.7 in June from an initial 48.9.

The German DAX 30 index  fell 1.4% to 7,797.12.

Shares of Adidas AG sank 3.4% after Deutsche Bank cut shares to hold from buy.

BMW AG  fell 1% after J.P. Morgan Cazenove cut the auto maker to neutral from overweight.

The French CAC 40 index  fell 1.4% to 3,691.87, with BNP Paribas SA off more than 3% on the downbeat tone for Europe banks.

Shares of heavyweight Total SA fell 0.8%, failing to benefit from a sharp rise in crude, but instead suffering as perceived riskier assets such as stocks fell.

London stocks were under equal pressure as losses for Barclays helped knock 1.6% off the FTSE 100 index to 6,213.17.

Mining stocks were among those losing ground — BHP Billiton PLC slid more than 3% and Rio Tinto PLC sank 2.3% — after China services data showed sluggish growth in June.

ARM Holdings PLC was nearly the only gainer in London, up 1% after UBS lifted those shares to buy from neutral on the view a pullback in shares due to news-flow looks overdone.

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