SUSPENSION OF A PORTUGUESE BANK'S SHARES SHAKES THE MARKETS

The European markets have been exuberant for months. Propelled by an improving economic climate, investors have been eager to make bold bets on risky assets like Portuguese bonds, Spanish construction companies and Greek banks.

But investors received a jolt on Thursday when shares of Portugal’s second-largest bank, Banco Espírito Santo, were suspended from trading, prompting fears that the bank might need to be rescued. The move sent high-flying stocks and bonds in Portugal plummeting, forced two Spanish companies to suspend bond offerings and brought concerns over the health of Europe’s banking system.

As markets from Germany to Greece wobbled, the tumult was a reminder to investors as to how quickly bad news can spread in the euro zone. At a time when the European Central Bank is scrutinizing banks, the problems at Espírito Santo are raising fears that there may be unpleasant surprises in banking systems in Greece, Spain and Italy.

In short, investors had to own up to the economic reality that Europe — while on the mend — is still in a precarious place.

“The credit crisis in the euro zone hasn’t gone away,” said Jack Ablin, chief investment officer at BMO Private Bank. “I hope this fires a shot across the bows of all central banks that says you can’t be complacent here.”

Over the last few years, the world’s central banks have pursued extraordinary easy money policies that have stoked a huge appetite for financial assets, driving investors to pile into the riskiest stocks and bonds.

But some regulators are concerned that unorthodox bond buying by central banks has created very frothy markets, particularly in high-yielding debt in European and emerging markets. And, as these markets tend to be fairly illiquid, when the selling begins en masse, the broader contagion effect can be punitive.

“No market goes straight up, and we’ve been in markets that have gone straight up,” said Timothy M. Ghriskey of Solaris Asset Management.

“There was bound to be a pullback in pricing to more properly reflect the risks, instead of ignoring them.”

Investors first started to reconsider Europe in the summer of 2012, when Mario Draghi, the central bank president, promised to do whatever it took to preserve the euro. Trust in Mr. Draghi, along with a torrent of available cash resulting from loose central bank policies, has precipitated a significant asset boom in Europe as risk starved investors have piled into securities they had once shunned.

The improving economic conditions have only bolstered investor sentiment. Growth, though still weak, has returned to large economies like Spain, driven by robust exports and governments eager to stick with economic reform policies. Even Greece has emerged as an investor darling with tough spending cuts and a small improvement in tax revenue producing a budget surplus last year before accounting for the cost of interest on the government’s debt.

But the ebullient markets have largely cloaked the current economic and financial strain. Economists have warned that the root causes of Europe’s misery — high levels of debt and weak growth — have not gone away.

In Greece, for example, a nascent export recovery hailed by policy makers as a sign that the country was finally becoming more competitive seems to have stalled, with exports down 8 percent in May and 20 percent in April compared with similar periods a year earlier. And unemployment remains stuck at 27 percent.

Portugal, despite exiting its bailout program this year, remains caught in a vise of slow growth and persistently high debt levels. According to the most recent report from the International Monetary Fund, Portugal’s debt is 125 percent of its overall economy and the fund forecasts growth this year of 0.8 percent and 1.5 percent next year when it expects the debt levels to gradually start to fall. And while many investors feel the country will be able to finance its debt as long as the markets remain favorable, others are betting that once central banks pull back and interest rates start to rise again, dubious borrowers such as Portugal will be cut off again from the markets and forced to restructure their debt.

“There are doubts that Italy is out of the recession, France is going nowhere and Germany is growing at 1 percent,” said Edward Hugh, an independent economist based in Spain. “So the euro area grows at 1 percent this year if you are lucky and who knows what is going to happen next year.”

On Thursday, the problems were localized.

Banco Espírito Santo saw its shares plummet nearly 20 percent on Thursday before being suspended from trading by Portuguese regulators. Investors are increasingly worried about the bank’s health after its parent company, Espírito Santo International, said that it had missed payments on some of its debt.

The bank’s stock has been under pressure since late May after the disclosure that an audit by the Bank of Portugal found that Espírito Santo International was in “serious financial condition.”

The parent company disclosed that the audit had identified “material irregularities” in its financial statements, including “omissions in the accounting of liabilities,” overvaluation of certain assets and inadequate record keeping.

While the problems may remain isolated, the fears of more endemic problems were enough to scare markets on Thursday.

The Euro Stoxx 50 index of European stocks was off more than 1.6 percent, and Portugal’s main stock index fell 4.2 percent. The weakness spread to the United States, where the Dow Jones industrial average and the Standard & Poor’s 500-stock index each closed down less than 1 percent after an early sell-off.

In the market turmoil, yields on Portuguese and Greek bonds spiked.

Investor appetite for a Greek debt offering was diminished. In Spain, the construction conglomerate Grupo A.C.S., one of Europe’s most indebted corporations, was forced to postpone to a bond sale along with Banco Popular, a midsize Spanish bank.