European fears sink Wall Street

Stock markets in the United States fell on Friday as Europe’s debt crisis flared up again on fears Spain may eventually need a bailout, prompting traders to cash in three days of gains.

The news that the heavily indebted region of Valencia asked Madrid for financial aid interrupted a period of relative calm for Wall Street and raised the spectre that the euro zone’s fourth-largest economy may itself need to be rescued.

Bank shares, sensitive to signs of trouble in Europe, were among the biggest losers. The KBW bank index fell 1.9 percent, taking its weekly decline to 2.3 percent. Shares in Morgan Stanley fell 3.5 percent to $12.78.

Valencia, which already used several government credit lines in the first half of the year to meet debt repayments, still needs to repay 2.85 billion euros by the end of the year. That figure is not huge in itself but investors are concerned about the overall stability of the country and its banks.

“We don’t want to go to a full Spanish bailout if we don’t have to,” said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vt. “Maybe the market is just over reacting to it, but these days you never know.”

The Dow Jones industrial average was down 120.79 points, or 0.9%, at 12,822.57. The Standard & Poor’s 500 Index was down 13.85 points, or 1.0%, at 1,362.66. The Nasdaq Composite Index was down 40.60 points, or 1.4%, at 2,925.30.

Even with Friday’s loss, the S&P 500 posted its second weekly gain in a row, climbing 0.4%. The Dow ended up 0.4% and the Nasdaq composite index rose 0.6% for the week.