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Mortgage fears weigh on markets Stocks rise ahead of US meeting
(about 2 hours later)
European stock markets fell on Tuesday despite gains in Asia and the US, and attempts by the Federal Reserve to ease concerns about a US mortgage crisis. European stock markets have risen by early afternoon trading, as investor confidence improved ahead of a key meeting among US policymakers.
Investors said that they were still concerned about how many companies were caught up in the US problems. Federal Reserve chairman Ben Bernanke and US Treasury Secretary Henry Paulson are due to meet US Senator Chris Dodd, head of the Senate Finance Committee.
London's main FTSE 100 stock index lost 0.5%, with France's Cac 40 sliding 0.7 and Germany's Dax shedding 0.6%. In London, the FTSE 100 index was up 7.3 points to 6,086 by 1300BST.
Shares have tumbled in recent weeks as US mortgage market problems spread, and stocks were sold for safer investments. In Frankfurt, the Dax has added 27 points to 7,435, while Paris' Cac had risen 36 points to 5,436.
'Volatile days' The Fed has already moved to ease fears about a US mortgage sector crisis.
The trigger for the recent stock rout has been fallout from the US sub-prime mortgage market, which has seen a number of US mortgage lenders hit amid fears that a rise in bad debt could cause a wider financial crisis. Mr Bernanke is now due to meet with Mr Paulson and Senate Banking Committee chairman Christopher Dodd later on Tuesday to discuss the recent market turmoil.
European markets will be closely watching the US opening after the volatile share movements in recent days.
'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.
Until we see the actual relevant announcement [on interest cuts] this thinking will do little to eliminate any volatility Adam Neal, CMC Markets
Despite Tuesday's share gains in Europe, investors said that they were still concerned about how many companies were caught up in the US problems.
"We are still in a situation where we can expect some volatile days," said Richard Hunter, head of UK equities at Hargreaves Lansdown."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.""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."
Until we see the actual relevant announcement [on interest cuts] this thinking will do little to eliminate any volatility Adam Neal, CMC Markets Flight from equity
Investors are selling equities and other riskier forms of investment, and investing in various government bonds around the world.Investors are selling equities and other riskier forms of investment, and investing in various government bonds around the world.
That has seen bond prices rise and their yields fall.That has seen bond prices rise and their yields fall.
On Monday, three-month US Treasury Bills suffered their biggest one-day drop since the October 1987 stock market crash. 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.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.
Haven hunting
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.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.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."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 by 0.5% to 5.75%.On Friday the Fed reduced the rate it applies to loans made between banks by 0.5% to 5.75%.
Officially, the Federal Reserve is not scheduled to meet until 18 September. Some analysts argue that until then market jitters will remain.Officially, the Federal Reserve is not scheduled to meet until 18 September. Some analysts argue that until then market jitters will remain.
US Treasury Secretary Henry Paulson is set to meet with Federal Reserve head Ben Bernanke and Senate Banking Committee chairman Christopher Dodd on Tuesday to discuss recent market turmoil.
Mortgage defaultsMortgage defaults
The recent turmoil has stemmed from a sharp rise in US home loan defaults, triggering fears of a wider financial crisis.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 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 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.The sector boomed when thousands of people took out loans during the housing boom that petered out in early 2006.