US bank bails out mortgage fund

Growing housing woes have put Wall Street on alert

US bank Bear Stearns is to give $3.2bn (£1.6bn) in loans to bail out one of its hedge funds that has lost money in the sub-prime mortgage sector.

It is offering the lifeline after the High-Grade Structured Credit Strategies Fund got itself into difficulty after the downturn in the housing market.

Bear said it hoped its actions would "reduce uncertainty" in the market.

While Bear's move was widely welcomed, concern over the mortgage industry saw US shares fall sharply on Friday.

The main Dow Jones index lost 183 points to 13,363, as investors fear any collapse of the sub-prime sector could spill over into the wider economy.

'Reduce uncertainty'

Sub-prime mortgages are high interest housing loans given to people on low incomes or with a poor credit rating.

As the US housing market has overheated and then faltered, home repossessions hit a record high last year, and a growing number of sub-prime borrowers have defaulted.

"The uncertainty in the marketplace surrounding these funds has made an orderly de-leveraging difficult," said Bear chairman and chief executive James Cayne.

"By providing the facility we believe we will stabilise financing, reduce uncertainty in the marketplace and allow for an orderly process to de-leverage the High Grade Fund."

Hedge funds are high risk, high return investments vehicles that are aimed at wealthy investors.