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Markets mixed in volatile trading | |
(1 day later) | |
Stock markets in the US and Europe saw mixed fortunes as the scale of the impact of the US sub-prime crisis on the banking industry dominated trading. | |
After a volatile session, the Dow Jones closed down 55.2 points at 12,987.5, falling below the 13,000 mark for the first time since August. | |
But shares closed up in London and Paris on suggestions that banks will be able to weather the credit crisis. | |
Bank stocks have fallen in recent days on fears of further heavy losses. | |
Market mood | |
US banks Merrill Lynch, Citigroup and Morgan Stanley have all revealed huge liabilities from mortgage-backed investments whose value has plummeted due to the US housing slump. | |
Further gloomy news came from E-Trade Financial Corp whose shares fell more than 50% after it said the value of its mortgage-backed securities had reduced sharply. | |
There is a fear that things are going to get worse rather than better Peter Cardillo, Avalon Partners | |
The firm insisted it could absorb write-downs of up to $1bn and still continue trading but the news spooked a market wary of any further sign of weakness in the financial sector. | |
"The problem is just the mood of the market," said Peter Cardillo, chief market economist at Avalon Partners. | |
"There is a tense feeling that there will be still more problems with the sub prime situation and a fear that things are going to get worse rather than better." | |
In Europe, it was a slightly different story as bank shares rallied strongly. | |
There have been fears that some of Europe's leading banks would be similarly affected but analysts said that these fears may have been overstated. | |
In London, Royal Bank of Scotland shares rose 9% while Barclays gained 8% as the FTSE closed up 33 points at 6,337.9. | |
The benchmark Cac index also rose in Paris although Frankfurt's Dax lost ground. | |
"Since nothing has emerged so far in terms of write-down there's a sense among some investors that they've overdone the sell-off," said Commerzbank economist Peter Dixon of the recent weakness in bank stocks. | |
"My general view is that the worst case will not materialise with banks writing off more than their core capital." | |
'Overseas factors' | 'Overseas factors' |
Earlier, Tokyo's Nikkei ended 2.48% down at 15,197.09, and the broader Topix slid 2.54% to 1,456.40 - both 15-year lows while Hong Kong's Hang Seng Index fell 4.5%. | |
The financial fallout from the US sub-prime crisis in now being felt all over the world. | |
"I'm afraid factors from overseas, such as sub-prime problems, are coming over to Japan," said Chief Cabinet Secretary Nobutaka Machimura. | |
Shares in Asian exporters have been hit by the weaker US currency | |
"We'll closely monitor the situation," he added. | |
Japanese investors sold shares in firms heavily-reliant on exports to the US, especially car and electronic companies, as the yen hit its strongest level against the dollar since May 2006. | Japanese investors sold shares in firms heavily-reliant on exports to the US, especially car and electronic companies, as the yen hit its strongest level against the dollar since May 2006. |
What started as problems in the US housing market, with default rates on mortgages rising in the wake of a series of interest rates rises, later spread to other markets. | What started as problems in the US housing market, with default rates on mortgages rising in the wake of a series of interest rates rises, later spread to other markets. |
As banks begin to reveal their exposure to the sub-prime sector - which specialises in lending to riskier borrowers - there are increasing fears that greater financial losses lie ahead. | As banks begin to reveal their exposure to the sub-prime sector - which specialises in lending to riskier borrowers - there are increasing fears that greater financial losses lie ahead. |
Elsewhere, China's Shanghai Composite Index fell nearly 3% while in India, the benchmark index in Mumbai slid more than 3%. | |