US regulator curbs short-selling

Bear Stearns is the biggest casualty of the credit crunch

The US regulator has passed an order to prevent some forms of "short-selling".

The rule will prevent traders from taking certain "short" positions in major financial companies, which some blame for the slump in share prices.

It will apply to US mortgage finance firms Fannie Mae and Freddie Mac, which have seen about half the value of their shares wiped out in the past week.

Short-selling occurs when an investor borrows shares from their owner and sells them, hoping the price will fall.

They then buy the shares back at a lower price, pocketing the difference.

Crack down

The rule, which will come into effect on 21 July, is part of efforts by the Securities and Exchange Commission to crack down on suspected manipulation of market prices.

It comes in the wake of the near-collapse of Wall Street giant Bear Stearns, following intense speculation that the bank was struggling to fund its daily business.

The rumours triggered a sudden collapse of confidence among clients, who rushed to withdraw their assets and forced the firm to agree to be bought by rival JP Morgan Chase for a fraction of what it was worth just weeks before.

A few months later, Lehman Brothers almost suffered the same fate and has struggled since then to overcome concerns about the health of its balance sheet.

Its shares have tumbled almost 80% this year.