Portuguese authorities on Friday sought to allay market fears over the health of the country`s biggest listed bank Banco Espirito Santo, which has seen its shares plummet over its parent group`s debt woes.
"There is no reason to doubt the security of the funds entrusted to the BES, and its savers have no need to be worried," Portugal`s central bank said in a statement.
Prime Minister Pedro Passos Coelho said: "There is no reason for the state to intervene in a bank which has solid capital and which has a comfortable margin to deal with any eventuality, even the most adverse."
Lisbon stock market regulators suspended trading in BES shares on Thursday after they plunged by more than 17 percent. After the ban was lifted around midday on Friday, the shares gained close to 4.0 percent to 0.53 euros.
The overall Portuguese market was more than 2.0 percent higher meanwhile, after losing four percent on Thursday.
Concerns that the bank`s troubles could have a wider impact on Portugal -- which only two months ago exited a three-year, 77 billion euro ($106 billion) international bailout -- sent shockwaves through global markets as questions resurfaced over eurozone debt.
The Portuguese bank has been hit by suspicion that its holding company, the family-run Espirito Santo International (ESI), covered up a 1.3 billion euro hole in its accounts.
BES said Friday that its exposure to debt in the Espirito Santo group reached 1.18 billion euros at the end of June.
Prime Minister Coelho said it was important that the problems "afflicting the Espirito Santo family" not affect the bank.
However it did not have an estimate for potential losses related to the exposure, pending the publication of a restructuring plan from the group.
European stock markets also traded higher on Friday after a sell-off the day before. Bond yields on peripheral eurozone states, which had jumped on Thursday, eased on Friday.
"The Bank of Portugal... has reassured the market and calmed the situation," said Nordine Naam, a strategist at the financial group Natixis.
In Brussels, the European commission said it stood by the Portuguese Central Bank statement and believed the crisis could remain limited.
"We are confident that any problem in the system will be managed in a timely and efficient manner," said Simon O`Connor, spokesman for the Economic Affairs commission.
The IMF, which managed Portugal`s bailout with the EU, said late Thursday that "pockets of vulnerability" remained in the banking system, though it noted that Portuguese lenders had "been able to endure the crisis without significant disruption."
