The FTSE 100 plunged more than 190 points on Friday morning and stock markets across Europe were left reeling from a global credit crisis despite more efforts by the European Central Bank to stem the panic.
The ECB had already taken its boldest steps since the 9/11 terror attacks to soothe markets with a massive injection of funds. On Friday it released further resources into the banking system to help restore stability to markets.
The news appeared to calm money markets in the euro zone but the FTSE 100 remained deep in the red, with banking stocks hit hard by fears over loans not being repaid.
The index of leading London shares was down 190,4 points, or just over 3%, at 6 080,8 by late morning. The FTSE 250 was down 275,4 points, or 2,3%, at 10 954,7.
The current crisis has been sparked by fears about the spread of credit problems which began with the United States subprime mortgage market — risky loans to borrowers with poor credit histories. Many of these loans are now going bad.
Although the Bank of England has so far taken no action, many other central banks around the world have reacted to the market turmoil and their moves initially heightened the alarm.
The ECB injected an emergency â,¬95-billion into the markets on Thursday and the United States Federal Reserve added $24-billion in temporary reserves to the US banking system to shore up liquidity and bring down short-term interest rates. Overnight, the Bank of Japan and the Australian central bank took similar action.
Traders said today’s news of more planned action from the ECB helped restore some stability and it could mean a less drastic start than first feared to Wall Street trading this afternoon.
”At one point today the Dow was indicated to continue its slide on the open with a 100-point fall. This morning’s announcement from the ECB to inject further liquidity seems to have lightened the mood and right now US futures have rallied back to indicate only a five or 10-point fall on the open in the Dow,” said Martin Slaney, head of spread betting at GFT Global Markets.
”But we are ready for continued volatility and heavy trading volumes. The market is very much on red alert for mentions of any more funds or institutions which fall victim to the subprime issue. Bank stocks have been sold in Europe this morning and we could see this in the US markets too, as investors try to assess their exposure to this.”
In the UK, banks featured strongly among the biggest fallers. Barclays lost 4,1%, RBS shed 3,3%, HSBC dropped 1,5%, Lloyds TSB fell 2,1% and Alliance and Leicester was down 0,7%.
That added to pressure on the FTSE 100, which lost more than 100 points on Thursday. The Dow Jones Industrial Average fell 387,18 points, a drop of almost 3%.
Overnight, Asian stock markets followed suit, with key indices falling as much as 4%. – Guardian Unlimited Â