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Investors set for fresh jitters Asian stocks markets open to calm
(about 11 hours later)
Investors are expecting a jittery start to the week when markets in Asia open, in the wake of recent turmoil. Asian stock markets saw modest rallies after central banks around the world pumped money into banking systems to ease fears of a global credit crisis.
The Bank of Japan announced another cash injection of 600bn yen (US$5bn, £2.5bn) into money markets, its second intervention in two trading days.
Its move is the latest by top central banks to prevent a credit crunch.
Shares slumped worldwide after a rise in US mortgage defaults triggered fears of a wider financial crisis.Shares slumped worldwide after a rise in US mortgage defaults triggered fears of a wider financial crisis.
Several central banks injected billions of dollars into the banking sector last week to keep money flowing, and some analysts expect further intervention. The move came after several banks froze or closed high-risk funds recently, causing fears over a credit crunch.
The move came after several banks froze or closed high-risk funds recently causing fears over a credit crunch.
According to the Sunday Times, US analysts estimate that some $300bn (£148bn) in loans could be "at risk".According to the Sunday Times, US analysts estimate that some $300bn (£148bn) in loans could be "at risk".
Specifically it is sub-prime loans that have been the worry. Sub-prime loans are those made to high-risk individuals and were promoted during a US housing boom.Specifically it is sub-prime loans that have been the worry. Sub-prime loans are those made to high-risk individuals and were promoted during a US housing boom.
But since then the housing market has slowed, and successive US interest rate rises have pushed up the cost of mortgage repayments, thereby increasing the number of defaults.But since then the housing market has slowed, and successive US interest rate rises have pushed up the cost of mortgage repayments, thereby increasing the number of defaults.
UncertaintyUncertainty
If there is one thing that the markets hate, it is uncertainty Gilles Moec, senior economist at Bank of America Q&A: Sub-prime lending One of the biggest worries for investors has been not knowing the scale of the problem.If there is one thing that the markets hate, it is uncertainty Gilles Moec, senior economist at Bank of America Q&A: Sub-prime lending One of the biggest worries for investors has been not knowing the scale of the problem.
"The big question is what is the overall amount and this is bad for the markets because if there is one thing that the markets hate, it is uncertainty," said Gilles Moec, senior economist at Bank of America."The big question is what is the overall amount and this is bad for the markets because if there is one thing that the markets hate, it is uncertainty," said Gilles Moec, senior economist at Bank of America.
Over the weekend several banks started to put a figure on the amount of bad debt they own, including German state bank WestLB which said it had 1.25bn euros in total exposure to the US sub-prime sector.Over the weekend several banks started to put a figure on the amount of bad debt they own, including German state bank WestLB which said it had 1.25bn euros in total exposure to the US sub-prime sector.
InterventionIntervention
Before the recent volatility, several banks had suspended or closed funds that had invested heavily in the sub-prime sector.Before the recent volatility, several banks had suspended or closed funds that had invested heavily in the sub-prime sector.
It was a move by BNP Paribas on Thursday that was the start of the latest share slump.It was a move by BNP Paribas on Thursday that was the start of the latest share slump.
The French bank closed three funds, because it said uncertainty in the sub-prime sector meant it could not assess the value of the funds accurately.The French bank closed three funds, because it said uncertainty in the sub-prime sector meant it could not assess the value of the funds accurately.
With fears over liquidity increasing, several central banks then intervened by injecting money into the banking sector.With fears over liquidity increasing, several central banks then intervened by injecting money into the banking sector.
The European Central Bank (ECB) was the first to make the move - injecting 95bn euros on Thursday, before injecting another 61bn euros a day later.The European Central Bank (ECB) was the first to make the move - injecting 95bn euros on Thursday, before injecting another 61bn euros a day later.
Japan's central bank injected one trillion yen ($8.5bn; £4.2bn) into the financial system while the US Federal Reserve intervened twice on Friday, pumping $38bn into the banking system.Japan's central bank injected one trillion yen ($8.5bn; £4.2bn) into the financial system while the US Federal Reserve intervened twice on Friday, pumping $38bn into the banking system.
But while some said it made sense, other feared it only aggravated fears.But while some said it made sense, other feared it only aggravated fears.
"The ECB was correct to shore up banks balance sheets by providing more liquidity," said Peter Morici, professor at the University of Maryland School of Business."The ECB was correct to shore up banks balance sheets by providing more liquidity," said Peter Morici, professor at the University of Maryland School of Business.
"But its high-profile tender offer did more to scare markets than calm them.""But its high-profile tender offer did more to scare markets than calm them."
OutlookOutlook
The prospect of further deterioration in US housing have altered the outlook for monetary policy in the US Citigroup briefing The recent turmoil has prompted analysts to ask whether it could have a wider impact on US economic growth, and therefore whether the Federal Reserve might think about cutting interest rates.The prospect of further deterioration in US housing have altered the outlook for monetary policy in the US Citigroup briefing The recent turmoil has prompted analysts to ask whether it could have a wider impact on US economic growth, and therefore whether the Federal Reserve might think about cutting interest rates.
"The broadening storm in financial markets and the prospect of further deterioration in US housing have altered the outlook for monetary policy in the US, and possibly elsewhere," Citigroup wrote in a briefing note to clients."The broadening storm in financial markets and the prospect of further deterioration in US housing have altered the outlook for monetary policy in the US, and possibly elsewhere," Citigroup wrote in a briefing note to clients.
Late on Friday, the International Monetary Fund made moves to allay fears over a wider melt-down.Late on Friday, the International Monetary Fund made moves to allay fears over a wider melt-down.
"The fundamentals supporting strong global growth remain in place," it said."The fundamentals supporting strong global growth remain in place," it said.
By Friday's close the FTSE100 had seen its most dramatic loss in more than four years, shedding 3.7%.By Friday's close the FTSE100 had seen its most dramatic loss in more than four years, shedding 3.7%.
The Paris-based Cac 40 was down 3.13% while the Dax in Frankfurt ended the week 1.48% lower.The Paris-based Cac 40 was down 3.13% while the Dax in Frankfurt ended the week 1.48% lower.