By Sara Sjolin, MarketWatch

LONDON (MarketWatch) -- European stock markets broke a five-day losing streak on Friday, with regional banks bouncing back after an ugly selloff spurred by troubles at the Portuguese Espirito Santo conglomerate.

The Stoxx Europe 600 index gained 0.4% to 337.78, trimming its weekly slide to 2.9%. A weekly loss of that size would be the biggest since April.

The benchmark dropped 1.1% on Thursday, when concerns about the robustness of Espirito Santo International (ESI) sent shivers through the European financial sector. Trading in shares of Banco Espirito Santo SA (BES) and Espirito Santo Financial Group SA -- subsidiaries of ESI -- was halted on Thursday and remained suspended on Friday. Read: Portugal's banking turmoil revives darkest nightmares about Europe

BES on Friday disclosed it has an exposure of 1.18 billion euros ($1.6 billion) to the Espirito Santo conglomerate through loans and securities, but added that its capital buffer is EUR2.1 billion euros above the minimum regulatory level for European banks.

Portugal's PSI 20 index closed at the lowest level since October amid the tumult on Thursday, but climbed 2.2% to 6,238.90 on Friday.

Portuguese bonds also rebounded, with the yield on 10-year government bond paper falling 11 basis points to 3.87%. The yield traded close to 4% on Thursday, reflecting investor nervousness that the Espirito Santo chaos could spread further to Portugal's financial system.

"Portugal gave a timely reminder to markets of the presence of risk, and the specific challenges euro-area banks pose to the euro-area economy," UBS economist Paul Donovan said in a note. "If markets become more volatile, that volatility can create contagion via capital requirements for other banks."

Southern European banks also rebounded after sharp losses, with shares of Banca Popolare di Milano Scarl up 3.4% and Banco Popular Español SA up 2.4%. Italy's FTSE MIB index jumped 1.2% to 20,726.89, while Spain's IBEX 35 index climbed 1.2% to 10,655.30.

Imperial Tobacco Group PLC (ITYBY) rallied 3.2% in London after the tobacco company confirmed it's in talks buy assets and brands from Reynolds American Inc. (RAI) and Lorillard Inc. (LO).

The U.K.'s FTSE 100 index advanced 0.3% to 6,693.28. Miners capped gains for the London benchmark as they fell with weaker commodity prices. Shares of Randgold Resources Ltd. lost 3.4%, Fresnillo PLC gave up 2.1% and Rio Tinto PLC (RIO) lost 1.7%.

France's CAC 40 index gained 0.6% to 4,327.12, while Germany's DAX 30 index climbed 0.3% to 9,689.43.

In data news, annual inflation in Germany rose to 1% in June from 0.6% in May, confirming an earlier estimate.

And in France, Bank of France figures showed the country's current-account deficit widened in May.

More must-reads from MarketWatch:

5 things to know about Banco Espirito Santo and Europe

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John Kerry, Shinzo Abe try diplomacy through embarrassment

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