STOCK MARKETS SUFFER FRESH FALLS

New York shares have cast a shadow over global stock markets again after warnings that the problems in credit markets will hit big banks' profits.
The Dow Jones suffered its biggest fall since 9 August on Tuesday, closing down 280.3 points or 2.1% at 13,041.9.

Many of the biggest fallers were in the financial sector after Merrill Lynch told clients not to buy shares in Bear Stearns, Lehman Brothers and Citigroup.

Share prices in Japan fell 2.5% at the opening of the market on Wednesday.

The fall was made worse by the strengthening of the yen, as companies which rely on exports saw their shares drop.

Markets plunged across Asia, with the Hong Kong and Singapore indexes both falling by more than 2%.

But the BBC's Chris Hogg in Tokyo says the situation is nowhere near as bad as two weeks ago.

Debt exposure

Banks have been hit by the problems in housing and credit markets.

The downgrades came the day after Goldman Sachs cut its profit forecasts for the earnings of Bear Stearns, Lehman Brothers and Morgan Stanley.

Shares in US bank State Street fell on newspaper reports that the money manager is exposed to the sorts of debt that have been causing problems in recent weeks.

The Times said that State Street has the highest exposure to a particular type of package of retail and commercial loan of any bank.

The mood on Wall Street worsened after the release of minutes from the 7 August meeting of the Federal Reserve's interest-rate setting committee.

The minutes showed that the committee's members realised that the problems on the financial markets might need a policy response, but they did not act because they were keeping their focus on inflation.

Rate cuts

Some analysts see the minutes as an indication that there will not be a cut in the benchmark Federal Funds rate, which influences rates paid and received by the general public, in the near future.

They say that the rate-setters will continue to use the Discount rate, which is the rate used for lending to banks, to help out lenders who are facing a credit crunch.

Wall Street's weak opening had an impact on European shares, which were still trading.

The FTSE 100 fell 1.9% or 117.9 points to close at 6,102.2, ending a six day winning streak.

In Paris, the Cac 40 fell 2.1% or 116.4 points to close at 5,474.2.


SOURCE: BBC