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EU Banks Face Cyprus Stress Test (Update 1)

Speculation that Spain and Italy could be next in this unprecedented move to force depositors to contribute to a bailout and take losses was sparking fears of a run on banks across the eurozone.

"This marks the first time in the eurozone crisis that depositors in the bloc's banks will lose money," Edward Yardeni, president and chief investment strategist at Yardeni Research New York, said in a Monday morning note.

Paul Donovan, managing director of global economics at UBS in London, said in a note Monday that while UBS doesn't think that the eurozone will break up "the bailout of Cyprus over this weekend has not helped that conviction, however, and contagion risks are higher as a result of the terms of the bailout."

US banking giants Citigroup (C - Get Report) and Morgan Stanley (MS) traded lower between 1.5%-and-2.5%, while Bank of America (BAC - Get Report) erased early losses in Monday trading.

Moody's analysts noted on Monday that the Federal Reserve's stress tests were generally positive for the creditors of U.S. banks, however, they highlighted the 'conditional approval' of JPMorgan and Goldman Sachs' (GS) capital plans and the outright rejection of super-regional BBT (BBT) as negatives.

-- Written by Antoine Gara in New York

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