European shares extended their losing streak on Thursday as worries over Spanish lender Bankia caused its shares to fall more than 20 per cent, hitting markets and adding to growing fears of contagion from Greece's economic crisis.     

The pan-European FTSE 300 index was down 0.9 per cent at 984.22 points, close to a 4-1/2 month low of 983.95 points reached on Wednesday.     

Spain's benchmark Ibex index fell nearly 2 per cent to its lowest level since mid-2003, as shares in Bankia slumped following a report in the El Mundo newspaper that its customers had withdrawn more than 1 billion euros from their accounts over the past week.     

The worries over Bankia caused the euro zone Stoxx banking index to fall by more than 3 per cent, adding to losses incurred on Wednesday after the European Central Bank said it had stopped providing liquidity to some Greek banks because they had not been successfully recapitalised.      

Greece is set to hold fresh elections on June 17 after voters rejected austerity measures imposed on it by the European Union and the IMF, which has heightened fears that it will have to leave the euro zone.     

Investors are also worried by the possibility of contagion from a Greek exit from the euro spreading to other countries such as Spain or Italy.     

'It's not Greece leaving the euro that is the major issue, it's the domino effect,' said John Bearman, chief investment officer at British firm Thomas Miller Investment, which manages roughly 3 billion pounds ($4.8 billion) worth of assets.           

Concerns over Spain were highlighted by data showing that the country had slipped back into recession during the first quarter, while the country's medium-term borrowing costs rose sharply during a bond auction.      

Tensions within the European banking system were also exposed by the fact that key euro zone three-month bank-to-bank lending rates had edged higher on Thursday for the first time since the European Central Bank pumped in ultra-cheap, three-year funds in December.      

Royal London Asset Management's European equities fund manager Neil Wilkinson said he had reduced his exposure to financial stocks in recent weeks, as a result of the worsening European debt crisis.     

Wilkinson, who manages around 425 million pounds worth of assets, said his portfolio was 70 per cent invested in northern European equities markets such as France, Germany, the Netherlands and Switzerland, with a small amount in Italy and Spain.     

Wilkinson said he owned Italian bank Intesa and Spanish pharmaceuticals group Grifols, but was otherwise shying away from stocks in countries such as Portugal, Spain, Italy and Greece.

'The selling pressure is going to continue,' he said. – Reuters