World shares fall on credit fears

pop......... goes the weasel

http://news.bbc.co.uk/1/hi/business/6939757.stm

World shares fall on credit fears

Analysts say markets will remain volatile in the near future
Global stock markets have been under pressure for a second day amid fears that problems in the US mortgage market will prompt a worldwide credit crunch.
Billions of dollars were wiped off share values, affecting businesses and individual investors alike.

New York's main Dow Jones share index fell 60.89 points, 0.5%, to 13,209.79.

London's FTSE 100 share index had its worst day in more than four years, losing 3.7%. The Paris Cac index fell 3.1% and Germany's main Dax fell 1.4%.

'Maintain the stability'

Analysts say the crisis could make it harder for banks, firms and consumers to get access to loans and cash.

If this persists, it could lead to a global recession.

Investors have bought the financial equivalent of poisoned mutton dressed as prime lamb



Read the BBC's Robert Peston on US 'toxic' sub-prime loans

"Market participants don't know whether to buy on the rumour and sell on the news, do the opposite, do both, or do nothing, depending on which way the wind is blowing," investment bank State Street Global Markets said.

"The atmosphere is febrile."

UK Prime Minister Gordon Brown looked to reassure investors.

"There will always be issues with the markets, and of course we cannot insulate ourselves from events that are happening in all parts of the world," he said.

"I think the important message to be sent is we have done everything in our power to maintain the stability of the British economy."

Cash injections

Global stock markets have been rattled by worries over financial institutions' exposure to bad credit in the US sub-prime mortgage market.

Sub-prime lenders offer loans to consumers with a poor credit history.

As a result of these problems, banks have suddenly started charging significantly more for the money they lend to each other, signalling that they are looking to limit their risks.


Many stock indexes had hit near record levels in the past weeks

For their part, central banks around the world have moved to prop up markets by lending money to banks who might be in trouble.

The European Central Bank injected cash into the money market for a second day, as did other central banks worldwide.

The ECB said its move was to "assure orderly conditions in the euro money markets".

It injected 61.05bn euros (£41.65bn; $84.2bn) into the eurozone money markets on Friday.

The US Federal Reserve intervened twice during the day, adding $38bn to the banking system, the largest amount since it intervened in the days following the attacks on New York and Washington on 11 September, 2001.

Japan's central bank had earlier pumped one trillion yen ($8.5bn; £4.2bn) into the financial system to boost liquidity.

Asian jitters

The jitters come a day after the FTSE closed down nearly 2%, and following a fall of close to 3% on the Dow Jones index in New York.

At close of trade in Japan, the Nikkei share index was down 2.4%, at 16,764.1.

Many more financial institutions may come out in the future to say they have been making losses on the back of the sub-prime problems

Martin Arnold, CommSec


Q&A: Sub-prime lending
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In Hong Kong, the Hang Seng index ended the day down 2.88% at 21,799.96, after trade was suspended early because of a tropical cyclone warning.

South Korea's central bank said it would also intervene if necessary in financial markets to counter the international turmoil.

The Reserve Bank of Australia on Friday added more than twice the usual amount of money into the banking system, injecting A$4.95bn ($4.19bn; £2.08bn) in its regular morning money market operation.

Central banks in Malaysia, Indonesia and the Philippines intervened to sell dollars to support their currencies.

Housing market wobble

BNP Paribas announced on Thursday that it was suspending three investment funds worth 2bn euros because of problems with the US sub-prime mortgage sector.

We've got blind panic... and obviously a complete lack of confidence

Tony Craze, Dawntrader.co.uk


What's behind share slump?

In recent months, the number of loan defaults has increased because of higher interest rates, raising concerns that the wobble in the housing market will affect other parts of the economy and then start hurting other nations.

The worry is that should banks make losses, it would hurt their earnings and their profitability, making them less willing to fund the takeovers and buyouts that have underpinned much of the stock markets' recent gains.

Financial stocks led declines on Friday, with US mortgage lender Countrywide pacing the drop.

Citigroup, the biggest US bank, Dutch lender ABN Amro, Royal Bank of Scotland and UK lender Barclays also slid.