PORTUGAL’S government and central bank assured investors Friday that the southern European country’s financial system was sound, aiming to quell worries about the spillover effects of trouble at the Espirito Santo business empire.

    “It is important that Portuguese and foreign investors ... remain calm about the bank and our financial and banking system,” Portuguese Prime Minister Pedro Passos Coelho told reporters in Lisbon.

    Recent disclosures of financial irregularities at a web of family-held holding companies behind Portugal’s largest listed bank, Banco Espirito Santo (BES), have raised questions about potentially destabilizing losses at the bank and other companies in the family’s orbit. That worry sparked a rout in global markets Thursday, pushing up bond yields and reviving memories of the region’s debt crisis: Some European companies even abandoned long-planned fundraising operations.

    In a statement late Thursday night, BES insisted that any losses relating to the bank’s 1.15 billion euros (US$ 1.49 billion) exposure to Espirito Santo holdings would not put it at risk. The bank said it had 2.1 billion euros in capital above minimum regulatory requirements as of March 31, taking into account a further 1 billion raised via a June share sale.

    The statement partially steadied market jitters Friday in Portugal and beyond. European markets edged higher and Italy paid record low yields at an auction, shrugging off fears that had weighed on the sovereign debt markets earlier in the week.

    Portugal’s PSI index closed up 0.6 percent. BES shares opened up 11 percent when trading resumed after a suspension, though the stock then seesawed, closing down 5.5 percent, despite a ban on short selling in the stock.

    Portugal’s CMVM market regulator said Friday it had extended this “shorting” ban on BES shares for two more days.

    Moody’s Investors Service said it had cut the long-term debt ratings of BES to B3 from Ba3 and the long-term deposit ratings to B2 from Ba3, and it was on review for downgrade.

    The ratings agency said the downgrade “reflects Moody’s concerns regarding BES’s creditworthiness that are heightened by the lack of transparency on the ring-fencing of BES against any troubles emerging from its holding company Espirito Santo Financial Group (ESFG) or any other group entity.”(SD-Agencies)