World markets hit by US mortgage fears

Source: Stock Market Digital

Date :10/08/2007 09:27:02

Asian and European banks have had to inject funds following share market losses.

Reflecting global concerns over the American sub-prime mortgage sector, which lends to borrowers with a poor credit record, and the increasing number of loan defaults consequent to rising interest rates, the Nikkei share index was down by 2.4 percent, by the close of business yesterday. The Bank of Japan injected one trillion yen (£4.2 billion) into the financial system on Friday. In London today the FTSE 100 share index opened nearly two percent lower.

The concern is that losses would affect banks’ earnings, making them less willing to fund the M&A activity that has driven much of the stock markets' recent gains. Those concerns have been fuelled by the recent collapse of American Home Mortgage, the 10th largest lender in the USA.

The intervention by the Bank of Japan follows injections of funds into the banking system by the Reserve Bank of Australia European Central Bank (which described its move as a ‘fine-tuning operation’ though it is the bank's largest one-time intervention in the banking sector since the 9/11 2001 attacks), and the sale of US dollars by the central banks in Malaysia, Indonesia and the Philippines in a move to support their currencies.

The US Federal Reserve was reported to have pumped about $24 billion into the US banking system.