By Sara Sjolin
Spanish stocks rallied Friday on speculation the country may ask for European aid over the weekend, while the broader European stock market closed lower as resource firms and banks weighed.
The Stoxx Europe 600 index closed 0.3% lower at 241.93, breaking a three-day winning streak. The index, however, ended the week 2.9% higher, its best weekly performance since early February.
"This week was all about hope, but unfortunately hope doesn't contain a strategy. The markets wanted to see some policy action first from the ECB and then from Bernanke and they didn't get it," said Steen Jakobsen, chief economist at Saxo Bank.
Spain was again in the limelight after Fitch Ratings late Thursday downgraded the country's credit rating to BBB from A, with a negative outlook. The BBB credit rating is just two notches higher than junk status.
However, Spanish stocks erased losses after Reuters reported that the country may turn to the EU for help to deal with its ailing banking sector as soon as Saturday, citing two senior EU officials and a German official.
Spain's Deputy Prime Minister Soraya Saenz de Santamaria said there were no plans to take any decisions on aid before the conclusion from various reports on the country's banking sector were known.
The first report is due Monday, when the International Monetary Fund releases an audit of Spanish banks.
A representative from the European Commission's office said it wasn't aware of any fresh Spain request for aid.
The IBEX 35 index jumped 1.8% to 6,552.00. Telefonica SA supported the index, up 3.7%, while Bankinter SA rose 3.2% and Banco Santander SA took on 1.4%.
"I think Spain is almost in a desperate situation. What Spain needs to do is to take a blank piece of paper and figure out how to stay competitive, they need to privatize a lot of the companies and need to look at recapitalizing the banking system," Jakobsen said.
"Spain needs to be friendly to business and focus on creating jobs. The only way they can move forward is by creating a credible and competitive market plan," he added, and stressed that the problems are for Spain to figure out and not the rest of the European Union.
Comments from Barack Obama about the economy and the European crisis helped the broader stock market trim losses in late action and further pushed U.S. stocks into positive territory. The president urged Europe's leaders to help the troubled banking sector and warned Greece not to leave the currency union.
Elsewhere, miners and oil firms weighed on markets as oil prices tumbled and most metals prices were off. Among U.K. miners, Vedanta Resources PLC slipped 5.1%, Rio Tinto PLC fell 4.8% and BHP Billiton PLC declined 2.9%.
Oil group BP PLC lost 1.1% and BG Group PLC shed 0.9%.
The FTSE 100 index lost 0.2% to 5,435.08, with banks further adding pressure. Heavyweight HSBC Holdings PLC slid 0.7%, while Barclays PLC lost 1.3%. U.K. stocks were 3.3% higher for the week.
Banks were also on the decline in Germany. Commerzbank AG dropped 3.1%, while Deutsche Bank AG gave up 0.5%. The DAX 30 index lost 0.2% to 6,130.82, but was up 1.3% for the week.
Data showed German exports slid 1.7% in April month-on-month, the first decline in exports this year, signaling less demand for the country's product and a dampening of economic growth. Exports to the euro zone alone dropped 3.6% on a yearly basis. Imports also fell for the first time this year, down 4.8% on a monthly basis.
French stocks were also lower, with the CAC 40 index trading down 0.6% at 3,051.69. On a weekly basis, the index climbed 3.4%. Societe Generale SA gave up 1.2% and BNP Paribas slipped 1.9%.
Auto makers were off, with Peugeot SA declining 3.2% and Renault SA down 2.3%.
Elsewhere, heavyweight insulin maker Novo Nordisk AS slid 2.6% as the U.S. Food and Drug Administration delayed the approval of two new insulin drugs by three months.
-By Sara Sjolin; 415-439-6400; AskNewswires@dowjones.com