MercoPress. South Atlantic News Agency

Week ends with global share sell-off fears unabated

Possible credit crunch is scaring stockholders

Unite States stock markets dropped sharply Friday, extending a global share sell-off amid fears about the effect of higher interest rates on the world economy. There are growing concerns that higher rates will hit corporate profits and takeover deals, and dent consumer spending.

European markets were also jittery with the main share indexes closing down for a fourth day. Analysts have warned that markets could remain volatile for a number of weeks. By the close of trading in New York, the Dow Jones Industrial Average of leading shares was 206.55 points, or 1.5%, lower at 13,267.02. The wider measure of the US stock market, the S&P 500, ended down 1.6%, while the Nasdaq index, which largely tracks technology stocks, was 1.4% lower. Earlier, the FTSE 100 index of leading shares on the London market had closed 36 points, or 0.6%, lower at 6215.20. France's Cac-40 index of leading shares and Germany's Dax also declined. In Asia, the Wall Street slump on Thursday led to Japan's Nikkei closing down 418.28 points, or 2.4%, at 17,283.81, while Hong Kong's index ended 2.7% lower. In Latinamerica Brazil's Bovespa dropped 1.25% accumulating 7.3% loss in the week. The Mexican stock exchange had a moderate skid, 0.44%; Argentina's Merval seemed to stabilize by dropping 0.15% but ended the week with a loss of 5.6%. Chile's IPSA was the only positive market in the region, 0.44%. The main underlying problem behind markets volatility is that many investors are worried about an impending credit crunch or "credit re-pricing". In past years, financial markets, companies and consumers have all benefited from low interest rates and easy access to money, helping fuel a boom in spending, house price inflation and corporate takeovers. But now interest rates are rising and set to stay higher as central banks try to rein in inflation. A large part of the rise in share prices in the past year has been driven by the takeover boom, with private equity bidders pushing up the value of the firms they are targeting. Most of these deals are paid for with borrowed money and the banks who have loaned this cash have been laying off a large proportion of the loans by selling them to other investors. However because investors are bruised by their losses in the US sub-prime mortgage market, they are now less keen on buying the risky loans from the banks, taking away the credit needed for takeovers and prompting share prices to fall. At the same time oil prices have climbed, raising fears that inflation could also pick up again because of higher energy costs.