Merrill Lynch e-mail sparks European bank fears - report

A damaging seven-line e-mail from Merrill Lynch, the investment bank, on stoked fears of financial difficulties at Commerzbank, one of the largest banks in Europe, the Financial Times reported on its web site.

The e-mail added to the market's already heightened sense of anxiety about the health of Europe's banking sector, with analysts anxious about stress levels in the financial system, the FT.com report said.

"Again the market is flooded with rumours that Commerzbank, amongst all its other problems has sustained large trading losses in credit derivatives," wrote Maria Anastase, a member of Merrill's corporate credit department, the report said.

The e-mail was sent to the Standard & Poor's credit rating agency, with Merrill asking for a comment "as to the validity of this and the likely impact to the bank's health", the report said.

It went on: "Apparently, a number of banks have begun to shut down credit lines." It is not known how, or whether, S&P replied to the e-mail, the report said.

Neither company could be reached for comment.