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A woman pulls her shopping trolley a she walks past a closed down restaurant filled with publicity posters in Madrid.SERGIO PEREZ

The Spanish government denied a newspaper report on Thursday that customers had withdrawn more than €1-billion ($1.3-billion U.S.) from the partly nationalized lender Bankia over the past week.

Bankia itself said that deposit activity was normal but the government's denial helped its shares to recoup some of their heavy losses which had accelerated on Thursday.

Economy Secretary Fernando Jimenez Latorre denied a deposit flight was underway. "It's not true that there is an exit of deposits at this moment from Bankia," Mr. Latorre, a senior official who reports to the economy minister, told a news conference.

Concerns about the general state of Spanish banks, many of which have suffered heavy loan losses since a property market crash began in 2008 and may have to write off more bad loans, have upset financial markets. Some market watchers believe a large injection of public funds to recapitalize the banking system and flush out the real estate losses may force Spain to seek an international bailout.

Bankia tried to reassure its customers. "Bankia's operations have been within their usual parameters at the branch network over the past few weeks," it said in a statement. "The trend in activity shows deposit balances will not register substantial changes in the next few days."

"Bankia depositors can be absolutely certain about the security of their savings that they have entrusted with the bank," it quoted newly-appointed Chairman Jose Ignacio Goirigolzarri as saying in an internal note.

Shares in Bankia slumped as much as 30 per cent on Thursday, compounding a week of falls, as small investors who had participated in a July stock market listing sold their holdings which have lost nearly two-thirds their value since the flotation.

After Mr. Latorre's comment the shares recovered some ground to trade down 13.3 per cent at €1.44.

El Mundo newspaper reported that Mr. Goirigolzarri had told a board meeting on Wednesday about the flow of funds from the bank. Citing information from the meeting, it said that the €1-billion were equivalent to about 1 per cent of retail and corporate deposits at the bank.

The government took over Spain's fourth largest bank last week in an attempt to dispel fears that Bankia could not handle huge losses caused by a property crash which began in 2008.

There was no sign of any abnormal activity at Bankia branches in Madrid on Thursday. A few clients told Reuters that they had checked in with their branch manager regarding their deposits, but most said they were not moving them.

"I've got two accounts in Bankia and up to now I haven't shut them. I'm not even considering it," said Jose Ignacio Gonzalez, 42. "It has to be safer with state backing. It's got a guarantee."

A government spokeswoman said the bidding process to select an external auditor to value real estate assets across the banking sector was still open and denied that Oliver Wyman and BlackRock had been chosen, as sources previously had told Reuters. "We are at the stage of receiving pitches," she said on Thursday.

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