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European stocks dropped the most in more than a week as Portugal's coalition government splintered and crude oil surged above $100 a barrel amid rising political unrest in Egypt.
National benchmark indexes retreated in all the 18 western European markets except Iceland. The U.K.'s FTSE 100 lost 1.2 percent. France's CAC 40 fell 1.1 percent and Germany's DAX also retreated 1 percent.
Espirito Santo, Portugal's biggest bank by market capitalization, tumbled 11 percent to 54.5 euro cents. Banco Comercial plunged 13 percent to 8.1 euro cents. The country's bonds slumped, pushing the 10-year yield above 8 percent, as two ministers resigned amid austerity fatigue.
Prime Minister Pedro Passos Coelho said in a televised speech yesterday he's trying to hold his government together after losing both his finance minister and his foreign minister.
Secretary of State for Treasury Maria Luis Albuquerque replaced Vitor Gaspar at the Ministry of Finance. That prompted Paulo Portas, who leads the smaller CDS party in the coalition government, to quit, saying the new minister would offer "mere continuity" of the country's deficit-cutting plans.
Banks also fell as Barclays Plc, Deutsche Bank AG and Credit Suisse Group AG had their credit ratings lowered by S&P's as new rules and "uncertain market conditions" threaten their business.
Long-term counterparty credit ratings for Barclays and Deutsche Bank were cut to A from A+, while Credit Suisse Group was reduced to A- from A.
Barclays declined 0.8 percent to 280.75 pence, Deutsche Bank dropped 1.4 percent to 31.46 euros and Credit Suisse slid 2.6 percent to 25.04 Swiss francs.
Airlines fell after West Texas Intermediate crude surged to as high as $102.18, its highest price since May 1, 2012, as political uncertainty in Egypt escalated and an industry report showed U.S. stockpiles shrank the most this year.
Air France, Europe's largest airline, dropped 1.6 percent to 6.74 euros. Deutsche Lufthansa AG slid 3.9 percent to 15.27 euros and International Consolidated Airlines Group SA, the owner of British Airways, declined 1.3 percent to 263.9 pence.
Chr. Hansen A/S dropped 4.8 percent to 191.1 kroner after the world's biggest maker of dairy enzymes cut its full-year sales forecast on lower prices for the red pigment carmine. Sales will probably rise 6 percent to 7 percent on a like- for-like basis, down from an earlier targeted range of 7 percent to 9 percent, the company said.
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