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Mortgage concerns hit US markets Mortgage concerns hit US markets
(about 3 hours later)
US shares have tumbled amid fears that a wobble in the mortgage market may prompt a global credit crunch.US shares have tumbled amid fears that a wobble in the mortgage market may prompt a global credit crunch.
The Dow Jones index fell 199.24 points, or 1.5%, to 13,458.62. The S&P shed 1.7% and the Nasdaq lost 1.4%.The Dow Jones index fell 199.24 points, or 1.5%, to 13,458.62. The S&P shed 1.7% and the Nasdaq lost 1.4%.
European indexes slumped earlier after the European Central Bank said it was pumping money into the banking market.European indexes slumped earlier after the European Central Bank said it was pumping money into the banking market.
There also were reports that the US Federal Reserve was doing something similar to ensure that there was enough cash available for banks to use.There also were reports that the US Federal Reserve was doing something similar to ensure that there was enough cash available for banks to use.
Analysts said that the markets would remain volatile in the near future.Analysts said that the markets would remain volatile in the near future.
"Markets are taking this latest news seriously with the risk appetite on the back foot," said David Corbell, analyst at IFR Markets."Markets are taking this latest news seriously with the risk appetite on the back foot," said David Corbell, analyst at IFR Markets.
Spreading outSpreading out
The latest trigger for the slump was an announcement by French bank BNP Paribas that it was suspending three investment funds worth 2bn euros (£1.35bn) because of problems with the US sub-prime mortgage sector.The latest trigger for the slump was an announcement by French bank BNP Paribas that it was suspending three investment funds worth 2bn euros (£1.35bn) because of problems with the US sub-prime mortgage sector.
Sub-prime lenders offer loans to consumers with a poor credit history.Sub-prime lenders offer loans to consumers with a poor credit history.
In recent months, the number of loan defaults has increased, raising concerns that the wobble in the housing market will spread into other parts of the economy and then start hurting other nations. You're looking at the foundation of a marketplace that has imploded somewhat Steve Goldman, Weeden & Co
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 then 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.
"You're looking at the foundation of a marketplace that has imploded somewhat," said Steve Goldman, an analyst at Weeden & Co.
Tighter times
At the same time, banks have suddenly started charging significantly more for the money they lend to each other, signalling that they are looking to limit their risks, analysts said.
In response, the European Central Bank (ECB) said on Thursday that it had pumped 95bn euros into the eurozone banking market to allay fears about a credit crunch and lack of liquidity.
The conditions for the marketplace working through these issues are good President George W BushThe conditions for the marketplace working through these issues are good President George W Bush
The recent collapse of American Home Mortgage, the 10th largest lender in the US, have intensified those concerns.
On Thursday, the European Central Bank (ECB) said that it had pumped 95bn euros into the eurozone banking market to allay fears about a sub-prime credit crunch as lending slowed.
The move represented the ECB's single largest intervention in the banking sector since the immediate aftermath of the 9/11 attacks on the US in 2001.The move represented the ECB's single largest intervention in the banking sector since the immediate aftermath of the 9/11 attacks on the US in 2001.
Calling it a "fine-tuning operation", the ECB made the money in the form of loans, an offer taken up by 49 banks and other financial institutions.Calling it a "fine-tuning operation", the ECB made the money in the form of loans, an offer taken up by 49 banks and other financial institutions.
In the US, the Federal Reserve, also was reported to have taken similar action, pumping about $24bn (£12bn) into the US banking system.
Analysts said that a credit crunch - when it becomes harder for banks, companies and consumers to get access to loans and cash to run their operations - was a serious occurrence that could lead to a recession.
Soothing words?Soothing words?
The declines in the US markets came despite attempts by President George W Bush to calm market fears.The declines in the US markets came despite attempts by President George W Bush to calm market fears.
Speaking after a meeting with his top economic advisers, President Bush acknowledged there had been "disquiet" on Wall Street over the housing slump.Speaking after a meeting with his top economic advisers, President Bush acknowledged there had been "disquiet" on Wall Street over the housing slump.
But President Bush said he believed the markets were set for a "soft landing".But President Bush said he believed the markets were set for a "soft landing".
President Bush said he expected the markets to focus increasingly on the underlying health of the global economy and robust US prospects.President Bush said he expected the markets to focus increasingly on the underlying health of the global economy and robust US prospects.
"The underpinnings of our economy are strong," he said, adding that second-quarter growth had been strong, while both inflation and unemployment remained low."The underpinnings of our economy are strong," he said, adding that second-quarter growth had been strong, while both inflation and unemployment remained low.
"So the conditions for the marketplace working through these issues are good. My hope is that the market, if it functions normally, will be able to yield a soft landing.""So the conditions for the marketplace working through these issues are good. My hope is that the market, if it functions normally, will be able to yield a soft landing."