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Markets slump on banking worries Markets rattled by bank worries
(about 2 hours later)
Markets from New York to Tokyo have recorded heavy losses in reaction to the emergency bailout of US investment bank Bear Stearns over the weekend.Markets from New York to Tokyo have recorded heavy losses in reaction to the emergency bailout of US investment bank Bear Stearns over the weekend.
In New York the Dow Jones Industrials tumbled 194 points, more than 1.5%, in early trading before recovering. In New York the Dow Jones Industrials tumbled in early trading before recovering some ground.
London's FTSE 100 index was down 2.7%, in Paris the Cac 40 slumped 2.9% and Frankfurt's Dax fell 4.1%. London's FTSE 100 index ended down 3.9%, in Paris the Cac 40 slumped 3.5% and Frankfurt's Dax fell 4.1%.
The Bank of England on Monday made an extra £5bn ($10bn) available for UK banks to borrow to ease credit fears.The Bank of England on Monday made an extra £5bn ($10bn) available for UK banks to borrow to ease credit fears.
The money was five times over-subscribed. Banks scrambled to access the funds and the Bank of England's offer was nearly five times over-subscribed.
Meanwhile, on the markets US, UK and European banks were hammered; Lehman Brothers fell 30%, UBS lost 13%, HBOS 10% and Commerzbank fell 7.9%. US, UK and European banks were hammered; shares in Lehman Brothers fell 30%, UBS lost 10%, HBOS 12.7% and Commerzbank fell 6.8%.
Investors are worried that the collapse of Bear Stearns, one of Wall Street's biggest names, is a sign that the credit crunch is getting worse and lending might seize up.Investors are worried that the collapse of Bear Stearns, one of Wall Street's biggest names, is a sign that the credit crunch is getting worse and lending might seize up.
The Dow Jones was down 0.66%, or 79.22 points, at 11,871.87 in afternoon trading after tumbling 194 points at the start of trade.
Bush urges market calmBush urges market calm
US President George Bush attempted to reassure investors on Monday.US President George Bush attempted to reassure investors on Monday.
Desperate times need desperate measures Craig JamesEconomist, Commsec Send us your commentsQ&A: Banking crisisDesperate times need desperate measures Craig JamesEconomist, Commsec Send us your commentsQ&A: Banking crisis
"We are in challenging times," Mr Bush said at a press conference."We are in challenging times," Mr Bush said at a press conference.
But he added that the US authorities were "on top of the situation" but "when need be, will act decisively, in a way that continues to bring order to the financial markets."But he added that the US authorities were "on top of the situation" but "when need be, will act decisively, in a way that continues to bring order to the financial markets."
"In the long run, our economy is going to be fine"."In the long run, our economy is going to be fine".
Lehman Brothers also attempted to reassure investors on Monday about its financial situation.Lehman Brothers also attempted to reassure investors on Monday about its financial situation.
"Our liquidity position has been and continues to be very strong," Lehman Brothers said in a statement."Our liquidity position has been and continues to be very strong," Lehman Brothers said in a statement.
Asian stocks also fell, with Tokyo's Nikkei average closing 3.7% lower and Hong Kong's Hang Seng slumping 5.2%.Asian stocks also fell, with Tokyo's Nikkei average closing 3.7% lower and Hong Kong's Hang Seng slumping 5.2%.
In Mumbai, the Sensex was down 6.5%.In Mumbai, the Sensex was down 6.5%.
Central bank helpCentral bank help
Central banks have been trying to restore some confidence to the financial system.Central banks have been trying to restore some confidence to the financial system.
On Sunday, the US Federal Reserve reduced its discount rate - the interest rate at which it lends to commercial banks - from 3.5% to 3.25% and offered to buy up the assets of other troubled banks.On Sunday, the US Federal Reserve reduced its discount rate - the interest rate at which it lends to commercial banks - from 3.5% to 3.25% and offered to buy up the assets of other troubled banks.
The Fed is expected to lower its general interest rates on Tuesday by up to 1%.The Fed is expected to lower its general interest rates on Tuesday by up to 1%.
"Desperate times need desperate measures. The Federal Reserve is doing what it takes to restore stability and if it means cutting the discount rate on a Sunday night in the US, then so be it," said Craig James, Chief Equities Economist at Commsec in Sydney."Desperate times need desperate measures. The Federal Reserve is doing what it takes to restore stability and if it means cutting the discount rate on a Sunday night in the US, then so be it," said Craig James, Chief Equities Economist at Commsec in Sydney.
Overnight inter-bank dollar lending rates have risen sharply in London to levels not seen since 11 September 2001, reflecting growing unease about the health of the US financial system.Overnight inter-bank dollar lending rates have risen sharply in London to levels not seen since 11 September 2001, reflecting growing unease about the health of the US financial system.
Bear StearnsBear Stearns
Investors' confidence has been hit by the problems at Bear Stearns.Investors' confidence has been hit by the problems at Bear Stearns.
The investment bank was forced to seek emergency funding from the US Federal Reserve last week and was sold over the weekend to JP Morgan Chase for a tiny fraction of its earlier value.The investment bank was forced to seek emergency funding from the US Federal Reserve last week and was sold over the weekend to JP Morgan Chase for a tiny fraction of its earlier value.
The bank got into trouble when other banks refused to lend it money over fears that it had too many bad debts due to the sub-prime mortgage crisis.The bank got into trouble when other banks refused to lend it money over fears that it had too many bad debts due to the sub-prime mortgage crisis.
The Fed has agreed to take over up to $30bn of Bear Stearns' assets, removing the risk for JP Morgan.The Fed has agreed to take over up to $30bn of Bear Stearns' assets, removing the risk for JP Morgan.
The quick sale failed to calm investors' nerves who, this week, will receive earnings announcements from other big US investment banks, including Lehman Brothers, Goldman Sachs and Morgan Stanley.The quick sale failed to calm investors' nerves who, this week, will receive earnings announcements from other big US investment banks, including Lehman Brothers, Goldman Sachs and Morgan Stanley.
"There is persistent credit uncertainty. Market players have been repeatedly let down which shows the sub-prime mortgage problems are so deep-rooted," said Atsuji Ohara, global strategist at Shinko Securities in Tokyo."There is persistent credit uncertainty. Market players have been repeatedly let down which shows the sub-prime mortgage problems are so deep-rooted," said Atsuji Ohara, global strategist at Shinko Securities in Tokyo.
"Just buying an investment bank does not solve the problem," he added."Just buying an investment bank does not solve the problem," he added.
Dollar woesDollar woes
Worries about the credit crisis and the health of the banking industry also undermined the dollar.Worries about the credit crisis and the health of the banking industry also undermined the dollar.
It fell to 95.72 yen, its lowest level in more than 12 years. The euro hit a record against the dollar, buying $1.5903.It fell to 95.72 yen, its lowest level in more than 12 years. The euro hit a record against the dollar, buying $1.5903.
The weak dollar boosted commodities, with oil rising to another record, light sweet crude traded at $111.80 before falling back.The weak dollar boosted commodities, with oil rising to another record, light sweet crude traded at $111.80 before falling back.
The dollar is also falling because of the expectation that the US Fed will cut interest rates further, making it less attractive to hold dollars as opposed to other currencies.The dollar is also falling because of the expectation that the US Fed will cut interest rates further, making it less attractive to hold dollars as opposed to other currencies.


Have you been affected by the credit crunch? Are you having problems getting a mortgage or re-mortgage? What impact will the troubles of Bear Stearns have?Have you been affected by the credit crunch? Are you having problems getting a mortgage or re-mortgage? What impact will the troubles of Bear Stearns have?
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