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Global markets recover from falls US markets join global recovery
(about 2 hours later)
Global stock markets have recovered some ground from last week's sharp falls after central banks moved to ease fears of a worldwide credit crisis. Global stock markets have recovered some ground from last week's sharp falls, after central banks moved to ease fears of a world credit crisis.
European markets rose in morning trade, although the European Central Bank still pumped an extra 48bn euros ($65bn; £32bn) into the banking system. US markets opened higher on Monday, echoing gains seen in Europe.
By early afternoon, London's FTSE 100 was up 145 points to 6,183, while the Germany Dax was up 83 points to 7,426. Earlier in the day, the European Central Bank pumped an extra 48bn euros ($65bn; £32bn) into the banking system.
Credit concerns have been sparked by weakness in the US mortgage market. By 1450 BST, the Dow Jones index was up 0.6% to 13,317.1, while the Nasdaq added 0.7% to 2,562.6 points. London's FTSE 100 gained 2.6% to 6,193.6.
France's Cac-40 was 2% ahead, at 5,558.52, while Frankfurt's Dax put on 1.4%.
Earlier on Monday, Asian markets saw modest rises, with Japan's main Nikkei index closing up 36 points at 16,800 and the Australian All Ordinaries index ending up 62.3 points at 6,027.5.Earlier on Monday, Asian markets saw modest rises, with Japan's main Nikkei index closing up 36 points at 16,800 and the Australian All Ordinaries index ending up 62.3 points at 6,027.5.
Sub-prime woesSub-prime woes
The downturn is centred on the so-called sub-prime mortgage sector, which offers higher-interest, higher-risk loans to people with a poor credit history or those on low incomes. The recent volatility on the world's financial markets has been triggered by the US sub-prime mortgage sector, which offers higher-interest, higher-risk loans to people with a poor credit history or those on low incomes.
If there is one thing that the markets hate, it is uncertainty Gilles Moec, Bank of America Q&A: Sub-prime lending Is Europe's central bank bailing out hedge funds unnecessarily? Robert Peston, BBC Business Editor class="" href="http://www.bbc.co.uk/blogs/thereporters/robertpeston/">Robert Peston's blog Q&A: Sub-prime lending
As US interest rates have risen and the housing bubble has burst, a growing number of sub-prime lenders have defaulted on their loans.As US interest rates have risen and the housing bubble has burst, a growing number of sub-prime lenders have defaulted on their loans.
This has caused extensive financial difficulties for a number of investment funds that have widespread exposure to the sector, triggering fears of a wider financial crisis.This has caused extensive financial difficulties for a number of investment funds that have widespread exposure to the sector, triggering fears of a wider financial crisis.
While some estimates say about $300bn (£148bn) in loans could be at risk, one of the biggest worries for investors is not knowing the eventual scale of the problem.While some estimates say about $300bn (£148bn) in loans could be at risk, one of the biggest worries for investors is not knowing the eventual scale of the problem.
"The big question is what is the overall amount [of loans at risk], and this is bad for the markets because if there is one thing that the markets hate, it is uncertainty," said Gilles Moec, senior economist at Bank of America."The big question is what is the overall amount [of loans at risk], and this is bad for the markets because if there is one thing that the markets hate, it is uncertainty," said Gilles Moec, senior economist at Bank of America.
Over the weekend several banks started to put a figure on the amount of bad debt they own, including German state bank WestLB which said it had 1.25bn euros in total exposure to the US sub-prime sector.Over the weekend several banks started to put a figure on the amount of bad debt they own, including German state bank WestLB which said it had 1.25bn euros in total exposure to the US sub-prime sector.
Banking movesBanking moves
To try to ease fears over available credit, several central banks have intervened by injecting money into the banking sector.To try to ease fears over available credit, several central banks have intervened by injecting money into the banking sector.
The European Central Bank (ECB) was the first to make the move - releasing 95bn euros on Thursday, before injecting another 61bn euros a day later, and now an extra 48bn euros.The European Central Bank (ECB) was the first to make the move - releasing 95bn euros on Thursday, before injecting another 61bn euros a day later, and now an extra 48bn euros.
Japan's central bank injected an initial one trillion yen ($8.5bn; £4.2bn) into the financial system last week, before adding an additional 600bn yen on Monday.Japan's central bank injected an initial one trillion yen ($8.5bn; £4.2bn) into the financial system last week, before adding an additional 600bn yen on Monday.
Most importantly, the US Federal Reserve intervened twice on Friday, pumping $38bn into the banking system.Most importantly, the US Federal Reserve intervened twice on Friday, pumping $38bn into the banking system.
But while some said it made sense, other feared it only made markets more nervous.But while some said it made sense, other feared it only made markets more nervous.
"The ECB was correct to shore up banks balance sheets by providing more liquidity," said Peter Morici, professor at the University of Maryland School of Business."The ECB was correct to shore up banks balance sheets by providing more liquidity," said Peter Morici, professor at the University of Maryland School of Business.
"But its high-profile tender offer did more to scare markets than calm them.""But its high-profile tender offer did more to scare markets than calm them."
Other analysts said it did not solve the underlying weakness in the US mortgage sector.Other analysts said it did not solve the underlying weakness in the US mortgage sector.
"It's certainly very reassuring that central banks are providing liquidity, but that doesn't repair or make go away any losses that funds have experienced from the sub-prime sector," said Guy Hutchings, chief investment officer at MFS Investment Management."It's certainly very reassuring that central banks are providing liquidity, but that doesn't repair or make go away any losses that funds have experienced from the sub-prime sector," said Guy Hutchings, chief investment officer at MFS Investment Management.