GLOBAL MARKETS RECOVER FROM FALLS

Global stock markets have recovered some ground from last week's sharp falls after central banks moved to ease fears of a worldwide credit crisis.
With the Federal Reserve and others pumping money into banking systems at the end of last week, the main European share indexes opened ahead on Monday.

London's FTSE 100 added 111 points to 6,149 in early trading, while Germany's Dax rose 81 points to 7,424.

Credit concerns have been sparked by weakness in the US mortgage market.

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.

Sub-prime woes

The downturn is centred on the so-called sub-prime mortgage sector, which offers higher interest, higher risk loans to people with a poor credit history or those on low incomes.

If there is one thing that the markets hate, it is uncertainty

Gilles Moec, Bank of America


Q&A: Sub-prime lending

As US interest rates have risen and the housing boom 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.

While some estimates say about $300bn (£148bn) 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.

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.

Banking moves

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.

It now plans to release additional funds later on Monday.

Japan's central bank then injected an initial one trillion yen ($8.5bn; £4.2bn) into the financial system, before adding an additional 600bn yen on Monday.

Most importantly, 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 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.

"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.

"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.


SOURCE: BBC