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Last Updated: Friday, 3 August 2007, 21:51 GMT 22:51 UK
Big US slump ends volatile week
Traders in New York
Traders are looking for signs of which direction the US economy is heading
US stock markets fell heavily on Friday after a wild and volatile week.

The Dow Jones, which saw triple digit gains on Wednesday and Thursday, fell by 2.1%, 284.8 points, to 13,178.5. The Nasdaq lost 2.5% to 2,511.25 points.

Selling was driven by continuing concerns over financial institutions, especially sub-prime lenders, and its knock-on effect to the credit market.

A Bear Stearns top executive said that credit markets were in the worst turmoil he had seen in 22 years.

"These times are pretty significant," said Sam Molinaro, the investment bank's chief financial officer.

There is not going to be one sort of clear signal that suggests everything is OK
Mike Malone
Analyst

His comments reinvigorated the market's fears that a credit squeeze will end an era of cheap funding for corporate takeovers.

Despite Friday's heavy falls, the Dow Jones only lost 0.5% over the week.

A week earlier, Wall Street saw its worst five days of trading in four years.

Housing slump widening?

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.

This has led to concerns that the takeover boom that has been a critical driver of stock market performance over the past few years could fizzle out.

"I think there is a tremendous amount of uncertainty with regard to the credit markets and how the situation will ultimately settle," said Mike Malone, trading analyst at Cowen & Co.

Japanese businessman walking past share price board
Volatility has hit markets around the world

"There is not going to be one sort of clear signal that suggests everything is okay. I think it's going to take time and the equity markets are going to experience heightened volatility."

Shares in big home lenders, including Countrywide Financial and Washington Mutual, fell by more than 6% on Friday

And Accredited Home Mortgages saw its shares fall 31% after it announced plans to close down most of its operations, making it one of the biggest casualties of the US housing slump.

Its problems suggest the housing slump is widening because it is not a sub-prime lender.

Global markets have all seen volatility in the past fortnight.

The London market beat a retreat on Friday as weaker-than-expected US employment figures concerned traders.

The FTSE 100 index closed down 1.2% at 6,224.3 while French and German markets fell by similar number of percentage points.


MARKET DATA - 11:36 UK

FTSE 100
5429.64up
23.70 0.44%
Dax
5733.05up
19.54 0.34%
Cac 40
3784.02up
14.48 0.38%
Dow Jones
10403.79up
78.53 0.76%
Nasdaq
2273.57up
35.31 1.58%
S&P 500
1115.71up
11.22 1.02%
BBC Global 30
5707.15up
20.65 0.36%
Data delayed by at least 15 minutes

SEE ALSO
Volatility sweeps global markets
27 Jul 07 |  Business
Q&A: World stock market falls
27 Jul 07 |  Business
Q&A: Stock market falls and you
27 Jul 07 |  Business
Q&A: Sub-prime lending
12 Mar 07 |  Business

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