UH OH:

Santander (SAN.MC) said its Banif property fund, the largest of its type in Spain, could not meet an avalanche of redemptions and had asked the stock market regulator for permission to suspend payments for up to 2 years.

Clients holding 80 percent of the fund, or 2.62 billion euros ($3.3 billion), have asked to redeem their investments but the euro zone's biggest bank said the Banif Inmobiliario Fund FII lacked the cash to do so.

Although funds invested in bricks and mortar are by their nature illiquid, analysts warned the news could spark an overwhelming redemption demand by investors in other Spanish real estate funds. Spain's nine such funds have 7.25 billion euros under management.

"I've never seen a case like it," said one fund manager at Madrid brokerage Renta 4, who asked not to be named. "It could trigger a snow ball effect; that's one of the consequences when you start to hear that the biggest (fund) is doing badly".

UPDATE. Edward Hugh has more.