style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; text-align: justify; ">European markets slipped on Wednesday, with Spanish stocks once again pacing the decline in the region on lingering concerns about the country’s fragile banking sector. The Stoxx Europe 600 index was down 0.8% at 242.41.

The IBEX 35 index in Spain was down ~1% at 6,188.40. The DAX 30 index rose 0.8% at 6,346. The French CAC 40 index dropped 1% to 3,051. The FTSE 100 index lost ~1% at 5,333.

Greek stocks also came under pressure, with the Athens General Index down 2.5%.

The yield on Spain's benchmark 10-year note also climbed after ratings firm Egan Jones pushed the bonds further into junk status.

The Egan Jones move came after the European markets closed on Tuesday. However, three major rating firms - S&P, Moody's and Fitch - still rate Spanish debt as investment grade. 

Meanwhile, media reports suggested that the European Commission was prepared to give Spain until 2014 to meet the budget-deficit target of 3%.

A newspaper said it had obtained a rough draft of the copy of the economic strategy for the eurozone set to be delivered by the European Commission on Wednesday. Media reports said the EC will issue specific recommendations for each of the 27 countries. 

The EC wants to give Spain until 2014 to reach the budget deficit target of 3%, in light of its economic problems.

Shares of Bankia SA dropped the most in Spain after media reports said that the Spanish government’s plan to recapitalize the ailing bank with government debt was rejected by the European Central Bank (ECB). 

Spain had proposed putting €19bn (US$24bn) in sovereign bonds into Bankia's parent company, which would then get swapped out for cash at the ECB's three-month refinancing window, reports added.

Spanish stocks were additionally pressured by news that the Bank of Spain Governor Miguel Angel Fernández Ordóñez will step down early. Ordóñez was originally scheduled to leave the post on July 12. The move follows the nationalization of Bankia.

Fresh data showed the extent of Spain's economic problems. Retail sales for April dropped for a 22nd consecutive month, tumbling 9.8% on an annual calendar-adjusted basis, as consumers curtailed spending.

Separately, governing council member of the ECB Ewald Nowotny said yesterday that there were no talks of reinstating government bond purchases or providing more long-term loans to banks.

When asked about Spain’s banking problems, he said rescuing those institutions was the responsibility of national governments. Nowotny also said that the aim was to keep Greece in the eurozone, but that the decision was up to the country and its government.