Irish bank shares fell Friday, sharply underperforming the European sector as the cost of insuring against bond default rose following the nationalization of scandal-hit Anglo Irish Bank Corp. (ANGL.DB).

Irish bank Credit Default Swap spreads were quoted tighter across the board, with Anglo Irish bank five-year senior CDS around 250 basis points tighter, with subordinated CDS a huge 450 basis points tighter.

Five year senior CDS written on Bank of Ireland and Irish Life & Permanent were around 20 basis points tighter, while Allied Irish tightened around 35 basis points.

The cost of insuring sovereign bonds issued by Ireland against default also rose significantly.

At 1033 GMT, Allied Irish Banks PLC (AIB) shares were down EUR0.25 or 13% at EUR1.69, Bank of Ireland PLC (IRE) down EUR0.04, or 4% at EUR0.86, while Irish Life & Permanent PLC (APM.DB) was EUR0.05 lower, or 2.2% at EUR2.20.

The Stoxx Europe 600 banks index was up 2.7%, buoyed by news that the U.S. plans to provide Bank of America Corp (BAC) with an additional $20 billion.

Anglo Irish requested that its shares were suspended Friday on the Irish and London stock exchanges. The Irish government said late Thursday it will take control of Anglo Irish to secure its continued viability after taking hits from an accounting scandal and the broader financial crisis.

Early Friday, Irish sovereign credit default swaps were quoted at 240/290 basis points by one trader. Another trader said he had seen the contract bid at 230 basis points but that there had been no offers to sell protection during the morning.

The spread widening was in reaction to concerns that, by nationalizing Anglo Irish Bank, the Irish government has increased the amount of risk on its balance sheet.

"The nationalization of Anglo-Irish is yet another intervention too many," said Societe Generale fixed income analyst Ciaran O'Hagan, adding that governments need to be more selective in who they rescue.

Company Web site: www.angloirishbank.ie

-By Vladimir Guevarra, Dow Jones Newswires, +44 (0) 20 7842 9486, vladimir.guevarra@dowjones.com

(Michael Wilson and Mark Brown contributed to this item)

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