Central banks in the world's leading economies pumped extra money into the financial system for a third straight trading day on Monday helping to soothe markets and scare the dangers of a credit crunch.
The European Central Bank lent out an extra 65billion US dollars in overnight funds and the Federal Reserve injected 2 billion. But well below Friday's record of over 300 billion US dollars when together with other central banks (Canada, Australia, Japan and several Asian nations) marked a single day highest record since September 19, 2001. While jitters persisted in the US markets, the ECB said markets were beginning to return to normal, while the Fed reiterated it was ready to provide cash to the financial system as needed. The stock market was also reassured by news that investment bank Goldman Sachs Group Inc. and outside investors will spend 3 billion US dollars to prop up a hedge fund. The Dow Jones closed largely unchanged, down 0.02% at 13,236.5 while the Nasdaq lost 0.1% to 2542.4. Earlier European and Asian markets had made strong gains, after last week's global sell off. US investors reacted well to official figures showing a stronger-than-expected rise in July's retail sales. London's FTSE 100 closed 2.3% up at 6.237,8; France's Cac-40 ended was 2.2% ahead and Germany's Dax rose 1.8%. Asian markets had posted modest rises. The Shanghai Composite index reached 4.820, up 1.49%. In Latinamerica markets reacted mixed, Argentina's Merval was up 0.61% and Mexico 0.63%; however Brazil's Bovespa was down 0.39% and Chile's IPSA 0.95% Recent financial market volatility has been triggered by the US sub-prime mortgage sector, which offers higher-risk loans to people with a poor credit history. As US interest rates have risen and the housing bubble has burst, a growing number of sub-prime borrowers have defaulted on their loans prompting extensive financial difficulties for a number of investment funds with heavy exposure to the sector - and triggering fears of a wider financial crisis. While some estimates say 300 billion in loans could be at risk one of the biggest worries for investors is not knowing the eventual scale of the problem. But while some said it made sense, other feared it only made markets more nervous. As a result of the calm on the markets, oil prices had initially made gains but retreated on news that refinery problems were not as bad as initially thought. US light, sweet crude rose 15 cents to settle at 71.62 a barrel on the New York, having risen above 73 earlier while in London Brent crude fell 16 cents to 70.23 having been close to 72 US dollars.