US stocks lead rebound in markets

US stocks recover strongly, while European markets struggle

US stock markets have rebounded strongly after suffering acute losses last week, which were felt in equity markets around the world.

Wall Street closed higher after the worst week in four years caused by panic over the impact of higher interest rates on the economy.

Meanwhile, European shares were still jittery and ended broadly flat, with the London market closing down.

Many analysts predict that the markets will remain volatile in the near term.

"There obviously is a great deal of uncertainty in investors' minds right now and we do not expect that to be erased any time soon," said Bob Doll, vice chairman of Blackrock Merrill Lynch Investment Management.

Recovery

The key Dow Jones index of leading shares rose 92.8 points to 13,358.3, while the wider S&P 500 also gained, up 14.95 points at 1,473.9 points.

Buyers took advantage of Friday's slump that saw the key Dow Jones index fall 1.5%, bringing its decline for the week to 4.2%, the largest weekly percentage drop since March 2003.

Optimism over the state of company balance sheets as the second-quarter earnings season begins was credited for offsetting worries over the possibility of a credit squeeze and lifting US shares in New York after an erratic start to the trading session.

Earlier, London's FTSE 100 index of largest shares closed down 9.1 points at 6206.1, while Germany's Dax rose 4.63 points to 7456.31 and France's Cac 40 share index also inched into the black.

In Asia, Japan's Nikkei 225 index finished up 5.5 points at 17,289.3, shrugging off the sharp falls on Wall Street before the weekend.

Hong Kong's Hang Seng was also unaffected, adding 169.5 points to end at 22,739.9.

US mortgage woes

Equity markets have been concerned for some time that the problems affecting the US housing market will grow into a credit crunch that will hit the wider economy.

The sub-prime mortgage market, which offers high interest loans to higher risk customers or people on low incomes, has suffered as the US central bank - like many others - has increased interest rates to curb inflation.

This has resulted in record numbers of defaults in the past year, and dented investor enthusiasm for financial companies that have exposure to the industry.

Higher interest rates have also made it more expensive and thus difficult for private equity groups to continue to finance buyouts, leading to concerns that the takeover boom which has been a critical driver of stock market performance over the past few years could fizzle out.

The Bank of England and the European Central Bank are both due to make interest rate decisions on Thursday, but analysts expect both to keep rates unchanged.