World shares fall on credit fears

World shares fall on credit fears

Analysts say markets will remain volatile in the near future Stock indexes have fallen sharply again on Friday, a day after markets in the US and Europe suffered heavy losses amid fears of a global credit crunch. Billions of dollars were wiped off share values, affecting businesses and individual investors alike. Shortly after opening, the Dow Jones share index in New York was down 124.8 points, or 0.9%, at 13,145.9 points. London's FTSE 100 share index closed down 3.7%, the Paris Cac index fell 3.1% and Germany's main Dax fell 1.5%. 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. 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. 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 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. 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". Many stock indexes had hit near record levels in the past weeks The bank injected 61.05 bn euros (£41.65bn; $84.2bn) into the eurozone money markets on Friday. 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. 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. 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 Send us your comments 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. 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. We've got blind panic... and obviously a complete lack of confidence Tony Craze, Dawntrader.co.uk What's behind share slump? 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. The recent collapse of American Home Mortgage, the 10th largest lender in the US, has intensified those concerns. The declines in the US markets came despite attempts by President George W Bush to calm market fears.