Global markets drop again on U.S. loan worry

updated 6:34 p.m. ET Aug. 16, 2007

LONDON - Global stock markets tumbled again Thursday on persistent worries about U.S. housing loan problems and potential damage to the global economy.

The slides, which increased after U.S. markets fell again, came despite moves by the U.S. Federal Reserve to add more cash to the banking system and action by other central banks since last week that still failed to calm investors’ nerves.

In London, the FTSE 100 lost 4.1 percent — or 59.8 billion pounds ($119.14 billion) in the value of Britain’s biggest companies — as it fell past the 6,000 mark to close at 5,858.9, its lowest point since September 2006. France’s CAC-40 declined 3.3 percent to 5,265.47, its lowest level this year, and Germany’s DAX index fell 2.4 percent to 7,270.07.

The S&P/TSX composite index on the Toronto Stock Exchange fell almost 600 points at one point — its biggest point drop in six years — before recovering to close down 200.06 points, or 1.5 percent, to 12,848.7. Resource stocks were the hardest hit as investors worry that the global credit squeeze could slash demand for commodities.

“Investors continue to flee from anything that smells of risk, even the tiniest bit,” said Jay Bryson, global economist with Wachovia in Charlotte, N.C.

“There could be further losses to come,” said Scott Scrase, a trader at CMC Markets.

The benchmark Nikkei 225 index closed down nearly 2 percent on the Tokyo Stock Exchange after falling below the key 16,000-point mark the first time since November. South Korea’s main benchmark fell 6.9 percent, the greatest point drop ever, to record its lowest close since May. Hong Kong’s blue chip Hang Seng Index dropped 3.3 percent to its lowest close in two months.

Markets across Latin America were roiled by investor fears of a global credit crisis but also tracked a late-session rebound on Wall Street, where the Dow Jones industrial average fell more than 340 points in the afternoon before ending the day down just 16 points.

Mexico City stock market’s IPC index of leading issues ended down 1.2 percent, recovering from a 6 percent drop earlier in the day. In Brazil, the Sao Paulo stock market’s benchmark Ibovespa stocks index lost 2.6 percent but had been down nearly 9 percent.

Argentina’s benchmark Merval index recovered from a 9 percent decline to end the day with 4.7 percent loss. Chile’s Ipsa blue-chip index finished down 4 percent, but also lifted off lows.

Fausto Spotorno, chief economist at Orlando Ferreres y Associates in Buenos Aires, attributed the selling pressure to U.S. fund managers seeking to reduce risk exposure and cover losses in the mortgage-backed market.

“They need to finance the losses they have taken in the mortgage sector both in the U.S. and in Europe,” he said. “So they are financing their losses from funds from emerging markets.”

Before the market opened in the U.S., troubled mortgage lender Countrywide Financial Corp. revealed it would have to draw on an $11.5 billion credit line to fund its operations, with money increasingly hard to come by in tightening credit markets.

Also Thursday, the New York Fed, which carries out the central bank’s market operation, injected $17 billion into the banking system in two operations. That infusion comes on the heels of a Wednesday “repo” of $7 billion, in which it buys that amount in securities from dealers, who then deposit the money into commercial banks.

Central banks around the world have been supplying billions of funds to banks in the past week to make cash available for lending and keep interest rates from rising amid signs that credit was drying up.

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