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 0.2% to 337.15, trimming its weekly slide to 3.1%. 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 only BES resumed trade on Friday. After an initial jump, shares dropped 2.8%. 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 1.4% to 6,191.32 on Friday.

Portuguese bonds also rebounded, with the yield on 10-year government bond paper falling 6 basis points to 3.91%. 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 2.8% and Banco Popular Español SA up 3.1%.

Indesit Co. SpA rose 3% in Milan after Whirlpool Corp. (WHR) agreed to pay EUR758 million euros for a controlling stake in the appliance maker.

Italy's FTSE MIB index jumped 1.1% to 20,714.83, while Spain's IBEX 35 index climbed 0.9% to 10,620.10.

France's CAC 40 index gained 0.4% to 4,317.48, while Germany's DAX 30 index was flat around 9,660.53.

The U.K.'s FTSE 100 index advanced 0.2% to 6,683.02. Miners capped gains for the London benchmark as they fell with weaker commodity prices. Shares of Randgold Resources Ltd. lost 3.5%, Fresnillo PLC gave up 2.5% and Rio Tinto PLC (RIO) lost 1.6%.

Imperial Tobacco Group PLC (ITYBY) rallied 3.5% in London after the tobacco company confirmed it's in talks buy assets and brands from Reynolds American Inc. (RAI) and Lorillard Inc. (LO).

Outside the main index in London, shares of Kofax Ltd. (KFX) tanked 19% after the software provider said its fiscal 2014 earnings will be below expectations.

In data news, the U.K. Office for National Statistics said output in the construction industry fell by 1.1% in May compared with April. Chris Williamson, chief economist at Markit, called the number disappointing, but said "the official data available so far and the PMI surveys indicate that the U.K. economy enjoyed another robust economic expansion in the second quarter."

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

The correlation between stocks and bonds is spiking

John Kerry, Shinzo Abe try diplomacy through embarrassment

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