Asian stock markets rally

Source: Stock Market Digital

Date :13/08/2007 09:00:15

Asian stock markets have shown a modest recovery after central banks around the world pumped money into banking systems to ease fears of a global credit crisis.

The Bank of Japan announced its second intervention in two trading days with another cash injection of 600 billion yen ($5 billion, £2.5 billion) into markets.

Japan's main Nikkei index closed up 36 points at 16,800.

Global shares slumped last week after a rise in US mortgage defaults triggered fears of a wider financial crisis.

Last week's worldwide share falls came after several banks froze or closed high-risk investment funds, causing fears over a credit crunch.

According to some estimates, about $300 billion (£148 billion) in loans could be "at risk".

The problems were triggered by worries over sub-prime loans in the US.

Successive US interest rate rises have pushed up the cost of mortgage repayments, thereby increasing the number of defaults.

One of the biggest worries for investors has been not knowing the scale of the problem.

Over the weekend several banks started to put a figure on their bad debt, including

German state bank WestLB which said it had €1.25 billion in total exposure to the US sub-prime sector.

Before the recent volatility, several banks had suspended or closed funds that had invested heavily in the sub-prime sector.

BNP Paribas sparked the latest share slump on Thursday when it closed three funds.

The French bank 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.

The European Central Bank (ECB) was the first to make the move - injecting €95 billion on Thursday, and injecting another €61 euros a day later.

Japan's central bank then injected an initial one trillion yen into the financial system, while the US Federal Reserve intervened twice on Friday, pumping $38 billion into the banking system.

Some analysts have expressed fears that the moves will make markets more nervous.

August 13 2007