Stocks mixed after Fed comments

The markets remain nervous

US shares ended mixed on Tuesday after a key senator said the Federal Reserve had pledged to do all it could to ease credit squeeze fears.

Senate Banking Committee Chairman Christopher Dodd was speaking after he met with Fed boss Ben Bernanke and Treasury Secretary Henry Paulson.

The comments did not stop the Dow Jones index slipping 30.49 points, 0.23% to 13,090.86. The Nasdaq added 0.51%.

Earlier London's FTSE 100 finished 7.4 points, 0.12% ahead at 6,086.1.

France's Cac-40 index and Germany's Dax-30 also moved ahead, adding 0.36% and 0.23% respectively.

'Volatility to continue'

Shares have tumbled in recent weeks as US sub-prime mortgage market problems have spread, seeing global stocks being sold for safer investments.

Analysts fear that mortgage sector woes will make all loans harder to get.

Mr Dodd said that Mr Bernanke "intends to utilise all the tools available to him" to try to prevent US housing and credit problems from worsening.

Until we see the actual relevant announcement [on interest cuts] this thinking will do little to eliminate any volatility Adam Neal, CMC Markets

Despite the Fed and other central banks having already injected billions of pounds into financial markets to try and stabilise the situation, Mr Paulson had earlier warned that there would be no quick fix.

In the UK, the Bank of England said it had loaned £314m to commercial banks for the first time in more than a month. "We are still in a situation where we can expect some volatile days," said Richard Hunter, head of UK equities at Hargreaves Lansdown.

"On the one hand confidence is going to take a little while to return and on the other hand before such time as the extent of the credit problems are known it's going to be very difficult to move on in any meaningful way."

The stock market falls have resulted in the growing popularity of various government bonds around the world.

That has seen bond prices rise and their yields fall.

On Monday, interest rates on three-month US Treasury Bills showed their biggest one-day drop since the October 1987 stock market crash as investors flooded into to buy the safest type of bond.

And on Tuesday, eurozone government bond yields dropped, extending the previous session's falls, as continuing investor anxiety about a global credit squeeze supported demand.

A further sign of the move to safer investments was seen in Asia on Tuesday as Japan's yen strengthened and emerging market debt spreads widened, both signs of renewed caution, analysts said.

More rate cuts?

Adam Neal, a trader at CMC Markets, said speculation was building that the Federal Reserve would continue the process started last Friday with a cut in its main interest rate.

He added: "This would likely provide stocks with some further momentum, but until we see the actual relevant announcement this thinking will do little to eliminate any volatility."

On Friday the Fed reduced the rate it applies to loans made between banks to 5.75% from 6.25%.

Officially, the Federal Reserve is not scheduled to meet until 18 September. Some analysts argue that until then market jitters will remain.

Mortgage defaults

The recent turmoil has stemmed from a sharp rise in US home loan defaults, triggering fears of a wider financial crisis.

The recent market volatility has been prompted by a wave of mortgage defaults in the US as the housing market slowed dramatically after a series of interest rate rises that have made paying back loans more expensive.

The sub-prime sector makes loans to high-risk individuals and charges them higher rates of interest.

The sector boomed when thousands of people took out loans during the housing boom that petered out in early 2006.