Banca Monte dei Paschi led a retreat in Italian banking stocks yesterday in response to a bigger-than-expected loss and also due to the country's deteriorating economic outlook.

Shares in bailed-out Monte Paschi, Italy's number-three bank, fell as much as 10 per cent after its second-quarter results, published on Thursday, revealed a big rise in charges for souring loans. The sharp losses prompted Italy's market watchdog to ban short-selling of Monte Paschi shares until the end of the trading session on Monday next. The regulator had already imposed a short-selling ban on Banca Popolare dell'Emilia Romagna.

Shares in other Italian banks also fell, hit by the prospect that Italy’s worsening economic prospects could force them to increase provisions for loan losses on their books. – (Reuters)