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US markets join global recovery US markets join global recovery
(20 minutes later)
Global stock markets have recovered some ground from last week's sharp falls, after central banks moved to ease fears of a world credit crisis.Global stock markets have recovered some ground from last week's sharp falls, after central banks moved to ease fears of a world credit crisis.
US markets opened up on Monday, echoing gains in Europe, as the Federal Reserve said it had put an extra $2bn (£994m; 1.5bn euros) into the banking system. US markets opened up on Monday, echoing European gains, as the Federal Reserve said it had put an extra $2bn (£994m; 1.5bn euros) into the banking system.
The European Central Bank earlier said it was giving a further 48bn euros.The European Central Bank earlier said it was giving a further 48bn euros.
By 1535 BST, the Dow Jones index was up 0.5% to 13,307.5, while the Nasdaq added 0.8% to 2,564.2 points.By 1535 BST, the Dow Jones index was up 0.5% to 13,307.5, while the Nasdaq added 0.8% to 2,564.2 points.
Investors also reacted well to Commerce Department figures showing that retail sales had edged up 0.3% in July - ahead of market expectations. In Europe, London's FTSE 100 rose 2.6%, France's Cac-40 was 2.2% ahead and Germany's Dax rose 1.5%. Earlier, Asian markets posted modest rises.
London's FTSE 100 gained 2.9% to 6,210 .6. France's Cac-40 was 2.2% ahead, at 5,567.53, while Frankfurt's Dax had put on 1.5%. Investors also reacted well to official figures showing a stronger-than-expected rise in July's retail sales.
Earlier on Monday, Asian markets saw modest rises, with Japan's main Nikkei index closing up 36 points at 16,800 and the Australian All Ordinaries index ending up 62.3 points at 6,027.5. As a result of the calm on the markets, oil prices also gained with US light, sweet crude rose $1.64 to $73.11 a barrel in New York trade, while in London Brent crude meanwhile climbed $1.42 to $71.81.
Sub-prime woesSub-prime woes
Recent volatility on the world's financial markets has been triggered by the US sub-prime mortgage sector, which offers higher-interest, higher-risk loans to people with a poor credit history or those on low incomes. Recent volatility on global financial markets has been triggered by the US sub-prime mortgage sector, which offers higher-interest, higher-risk loans to people with a poor credit history or on low incomes.
Is Europe's central bank bailing out hedge funds unnecessarily? Robert Peston, BBC Business Editor Robert Peston's blog Q&A: Sub-prime lendingIs Europe's central bank bailing out hedge funds unnecessarily? Robert Peston, BBC Business Editor Robert Peston's blog Q&A: Sub-prime lending
As US interest rates have risen and the housing bubble has burst, a growing number of sub-prime lenders have defaulted on their loans.As US interest rates have risen and the housing bubble has burst, a growing number of sub-prime lenders have defaulted on their loans.
This has caused extensive financial difficulties for a number of investment funds that have widespread exposure to the sector, triggering fears of a wider financial crisis. This has caused extensive financial difficulties for a number of investment funds with heavy exposure to the sector, triggering fears of a wider financial crisis.
While some estimates say about $300bn in loans could be at risk, one of the biggest worries for investors is not knowing the eventual scale of the problem. While some estimates say $300bn in loans could be at risk, one of the biggest worries for investors is not knowing the eventual scale of the problem.
"The big question is what is the overall amount [of loans at risk], 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 [of loans at risk], 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 their bad debts, including German state bank WestLB which said it had 1.25bn euros in total exposure to the US sub-prime sector.
Banking movesBanking moves
To try to ease fears over available credit, several central banks have intervened by injecting money into the banking sector.To try to ease fears over available credit, several central banks have intervened by injecting money into the banking sector.
The European Central Bank (ECB) was the first to make the move - releasing 95bn euros on Thursday, before injecting another 61bn euros a day later, and now an extra 48bn euros. The European Central Bank (ECB) was the first - releasing 95bn euros on Thursday. It has since put in another 109 euros.
Japan's central bank injected an initial one trillion yen ($8.5bn; £4.2bn) into the financial system last week, before adding an additional 600bn yen on Monday. Japan's central bank put one trillion yen ($8.5bn; £4.2bn) into the financial system last week and an extra 600bn yen on Monday.
Most importantly, the US Federal Reserve intervened twice on Friday, pumping $38bn into the banking system, before Monday's extra contribution. Most importantly, the Fed intervened twice on Friday, pumping $38bn into the banking system, before Monday's extra contribution.
But while some said it made sense, other feared it only made markets more nervous.But while some said it made sense, other feared it only made markets more nervous.
"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."
Other analysts said it did not solve the underlying weakness in the US mortgage sector.Other analysts said it did not solve the underlying weakness in the US mortgage sector.
"It's certainly very reassuring that central banks are providing liquidity, but that doesn't repair or make go away any losses that funds have experienced from the sub-prime sector," said Guy Hutchings, chief investment officer at MFS Investment Management. "It's certainly very reassuring that central banks are providing liquidity, but that doesn't repair or make go away any losses funds have experienced from the sub-prime sector," said Guy Hutchings, of MFS Investment Management.