By George Georgiopoulos and Jeremy Gaunt
ATHENS (Reuters) - Greece's banking stocks plunged for the second day in a row on Tuesday, holding down the main Athens index which otherwise looked as if it was turning the corner after the previous day's record rout.
With lenders in dire need of recapitalisation after a flight of euros from deposits for most of this year, the banking index was down more than 29 percent, bumping up against the 30 percent daily loss limit at which trading is halted. It hit that limit on Monday.
But almost all other blue chip shares rose and the main index, of which around 20 percent is banks, was down only 2.4 percent as already historically low valuations fall to levels at which investors start moving back in.
On Monday, the Athens General Index lost 16.2 percent, around 8 billion euros in value, on the first day of trading after a five-week shutdown triggered as a protective measure as debt-strapped Greece sought to hang on to euro zone membership.
Many non-financial sector indexes gained on Tuesday. The blue chip retail sector, for example, was up nearly 6 percent.
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"The second day of trading showed clear signs we are moving towards a normalisation of the market after the long shutdown," said Socrates Lazaridis, chief executive officer of Hellenic Exchanges.
"Of the 25 constituent stocks on the FTSE large cap index, 20 (later 18) are trading positively. Only the banks are moving negatively," he told a news conference.
Among gainers were gaming group OPAP , up 4.5 percent, and Aegean Airlines , 8.1 percent. Some other tourism-related companies also did well.
There was no spillover evident from Greece to other European markets. Many investors have cut their exposure to Greece and are focusing more on the state of core markets such as Germany and France.
FEAR FOR THE FUTURE
Greek shares resumed trading on Monday after the suspension as part of capital controls imposed to stem a debilitating outflow of euros that threatened to cause a banking collapse and force the indebted country out of the euro zone.
Even with Tuesday's non-bank gains, stocks have fallen to roughly the level they were at in 1990 and, while not as low as they were in 2012, are some 52 percent down on last year's high.
Athens is in new bailout talks with its European Union partners and the threat of political and economic instability remains high.
There have, however, been signs of progress.
Greece expects to conclude a bailout deal with international lenders by Aug. 18, with the drafting of the accord starting on Wednesday.
On Monday, Athens and lenders agreed that any pension reforms would not affect individuals who retired before the end of June 2015. Talks on Tuesday were shifting onto issues related to the recapitalisation of banks and privatisation matters.
The banks, supported for the moment by the European Central Bank, are in dire need of recapitalisation.
It has been estimated by both Greek banks and the creditors that between 10 billion and 25 billion euros ($11 billion-27.5 billion) is needed.
The economy, meanwhile, has reversed course and is heading back into recession.
The European Commission says it will shrink by 2 to 4 percent this year, a return to the recession that plagued Greece for six years until 2014.
A survey on Monday showed Greek manufacturing activity plunged to a record low as new orders plummeted and the three-week bank shutdown caused serious supply problems.
At the same time, Greece's economic sentiment hit its lowest in almost three years in July, a monthly report by the IOBE think tank said.
($1 = 0.9108 euros)
(Editing by John Stonestreet)