UPDATE: Spanish Banks See Short-Selling Ban Timely, Adequate

Spain's top banking lobby said Friday that a short-selling ban on financial stocks was adequate and timely, on grounds that persistent volatility could have a serious effect on financial stability, although market observers expressed doubts that it could have a lasting impact and prevent further losses.

The remarks by the Spanish Banking Association, which groups the country's main listed banks, come after Spain's market watchdog late Thursday banned short selling operations, or the increase of existing short positions, on a list of 16 financial stocks for 15 days starting Aug. 11. The CNMV, as the market supervisor is also known, cited "extreme market volatility," particularly affecting financial services stocks.

In a statement, the banking lobby said the ban seeks to correct "a situation of extreme volatility that lacks an objective justification" and could have a serious effect on financial stability.

The ban covers all short positions, including those held through derivatives, which have become increasingly popular in Spain in recent years.

"We think this move creates a strong distortion to the asset management industry, especially for the hedge funds, and history tells us that it doesn't prevent any sell-off in the equity markets," Mediobanca Securities said in a note to investors.

The Spanish market supervisor said the ban may be extended if necessary. It will seek to coordinate any such move with the European Securities and Markets Authority, which coordinates securities rules among European Union member nations.

The move--coinciding with similar measures in Italy, Belgium and France--helped drive financial stocks higher Friday after some early losses. At 1111 GMT, top banking heavyweights like Banco Santander SA (STD) and Banco Bilbao Vizcaya Argentaria SA (BBVA.MC) were both up over 2%.

-By David Roman, Dow Jones Newswires, +34 91 395 8127; david.roman@dowjones.com

(Santiago Perez contributed to this article.)

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