Fears of a fresh wave of losses arising from the credit squeeze spread around the globe on Friday, depressing stock markets in Europe and Asia and savaging bank shares for the second day in a row.
Despite a surge in US employment growth last month, investors remained worried that banks and other financial institutions still faced heavy losses arising from the troubled US mortgage market and related securities
Market expectations that the impact of these losses on the broader US economy could spur the US Federal Reserve to cut interest rates further drove the dollar down to a new low against euro. The dollar’s slide in turn helped drive gold to a 28-year high of more than $800 an ounce and oil above $95 a barrel.
Andrew Wilkinson, analyst at Interactive Brokers, said: “A daisy chain of market reports predicting continued writedowns and runaway credit losses” at the biggest banks and brokerage firms hit investor sentiment.
Merrill Lynch led the fallers as the bank tumbled nearly 8 per cent, extending its drop over two days to 14 per cent. Its latest fall followed a report over its dealing with hedge funds about its holdings of mortgage-related securities.
Merrill, still reeling from this week’s departure of Stan O’Neal, its chief executive, after news of fresh writedowns of its holdings of mortgage-related securities, said it had no reason to believe that any “inappropriate transactions occurred”.
Enron 2 just around the corner