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Asian markets see shares recover Global markets recover from falls
(about 1 hour later)
Asian stock markets saw modest rallies after central banks around the world pumped money into banking systems to ease fears of a global credit crisis. 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.
The Bank of Japan announced another cash injection of 600bn yen (US$5bn, £2.5bn) into money markets, its second intervention in two trading days. With the Federal Reserve and others pumping money into banking systems at the end of last week, the main European share indexes opened ahead on Monday.
Japan's main Nikkei index closed up 36 points at 16,800. London's FTSE 100 added 111 points to 6,149 in early trading, while Germany's Dax rose 81 points to 7,424.
Global shares slumped last week after a rise in US mortgage defaults triggered fears of a wider financial crisis. Credit concerns have been sparked by weakness in the US mortgage market.
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.
If there is one thing that the markets hate, it is uncertainty Gilles Moec, Bank of America Q&A: Sub-prime lendingIf there is one thing that the markets hate, it is uncertainty Gilles Moec, Bank of America Q&A: Sub-prime lending
Last week's worldwide share falls came after several banks recently froze or closed high-risk investment funds, causing fears over a credit crunch. As US interest rates have risen and the housing boom has burst, a growing number of sub-prime lenders have defaulted on their loans.
According to some estimates, about $300bn (£148bn) in loans could be "at risk". 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.
The problems were triggered by worries over sub-prime loans in the US. Sub-prime loans are those made to high-risk individuals and were promoted during the US housing boom. 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.
However, successive US interest rate rises have pushed up the cost of mortgage repayments, thereby increasing the number of defaults.
One of the biggest worries for investors has been not knowing the 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.
Intervention Banking moves
Before the recent volatility, several banks had suspended or closed funds that had invested heavily in the sub-prime sector. To try to ease fears over available credit, several central banks have intervened by injecting money into the banking sector.
BNP Paribas sparked the latest share slump on Thursday when it closed three funds. The French bank said uncertainty in the sub-prime sector meant it could not assess the value of the funds accurately. The European Central Bank (ECB) was the first to make the move - releasing 95bn euros ($130m; £64m) on Thursday, before injecting another 61bn euros a day later.
With fears over liquidity increasing, several central banks then intervened by injecting money into the banking sector. Japan's central bank then injected an initial one trillion yen into the financial system, before adding an additional 600bn yen ($8.5bn; £4.2bn) on Monday.
The European Central Bank (ECB) was the first to make the move - injecting 95bn euros on Thursday, before injecting another 61bn euros a day later. Most importantly, the US Federal Reserve intervened twice on Friday, pumping $38bn into the banking system.
Japan's central bank then injected an initial one trillion yen into the financial system, while 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."
Japan's main Nikkei index closed up 36 points to 16,800 on Friday.