Portugal brews fresh economic fear

LISBON, Portugal - The specter of Europe's financial crisis is back to haunt investors.

Worries over the health of Portugal's biggest bank on Thursday raised fears that the country might run into financial trouble again - just weeks after emerging from a bailout - and trigger a flare-up in the market crisis Europe thought it had quelled.

Stocks and bonds fell in Europe and the U.S., while the price of gold rallied as traders sought it out as a safe investment.

The tensions center on Espirito Santo International, a holding company that is the largest shareholder in a group of Espirito Santo family companies, including the parent of Portugal's largest bank, Banco Espirito Santo. Espirito Santo International reportedly missed a debt payment this week and was cited for accounting irregularities - the sort of shenanigans that helped cause Europe's debt crisis four years ago.

Portugal is one of the smaller eurozone economies and, like Greece and Ireland, needed an international rescue in 2011 during the continent's debt crisis. A three-year economic recovery program was supposed to straighten out its finances. Difficulties at Banco Espirito Santo have triggered fears there may still be some unexploded bombs.

The International Monetary Fund, which provided funds for the Portuguese bailout, acknowledged in a statement that "pockets of vulnerability remain" in Portugal but declined to comment specifically on the case.

Trading in Banco Espirito Santo stock was suspended after a fall of more than 17 percent, which dragged the Lisbon stock market down by 4.2 percent. The yield on Portugal's benchmark 10-year bonds rose by 0.21 percentage points to 3.97 percent. The Dow Jones industrial average slid 0.4 percent, while Germany's DAX fell 1.5 percent. Italy and Spain saw sharper drops of 2 percent.

Part of what is spooking investors is that the size of the problem remains unclear and that there is potential for the trouble to spread to other companies.

An audit in May found "serious" accounting irregularities at Espirito Santo International, which this week reportedly delayed a short-term debt payment to clients. Because Espirito Santo International has important stakes in a network of the group's companies, its financial trouble could weigh on the others.

One of the subsidiaries, Espirito Santo Financial Group S.A., is the major shareholder in Banco Espirito Santo and was downgraded three notches by Moody's on Wednesday. The ratings agency expressed concern about "the lack of transparency" and the extent of links between the group's companies.

The Portuguese government insists that Banco Espirito Santo is solid, and that the drop in its stock prices merely reflects trouble at the parent company.

But investors have heard such reassurances in Europe before, only for banks to go bust and require the sort of huge rescue loans that can bankrupt small countries like Portugal.