US stocks have tumbled amid intensifying fears that the country’s mortgage crisis is spreading to other markets. The DOW Jones and S&P closed down nearly three percent. Wall Street had previously been on a three-day winning streak fuelled in part by a Federal Reserve statement that the economy was likely to keep growing. Analysts insist there’s no need to panic:
“We would expect this sort of vicious volatility to continue in the short term but, looking out to the long term, we think this is a healthy repricing of risk, more of a correction than a new bear market, so we would advise investors to sit tight.”, said one.
The trigger for the slump was the news that French bank BNP Paribas had frozen three funds that invested in US sub prime or high-risk mortgages. Evidence, analysts say, that the US credit crisis is going global. Repeated interest rate rises have pushed up loan repayments, leading to a rise in defaults which have hit mortgage lenders hard. US lender American Home Mortgage – the tenth largest in the country – has filed for bankruptcy after laying off most of its staff.