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NEW YORK - UNITED States stock markets tumbled on Monday as investors fretted about tight credit conditions despite a Federal Reserve auction designed to offer stretched commercial banks up to US$20 billion (S$29 billion) in funds.
Some major US banks have announced multi-billion dollar losses on mortgage-related investments, but analysts fear the banks' financial woes are far from over.
The Dow Jones Industrial Average closed down a sharp 172.65 points, 1.29 per cent, at 13,167.20, as investors remained concerned about bank losses and wider economic uncertainty largely triggered by the US housing slump.
The Nasdaq composite shed 61.28 points, 2.32 per cent, to 2,574.46 and the Standard & Poor's 500 broad-market index finished down 22.05 points, 1.50 per cent, at a close of 1,445.90.
Mr Al Goldman, a chief market strategist at AG Edwards, attributed the stock market declines to 'worries about potentially larger credit market losses at US banks'.
Commercial banks have tightened their lending practices as profits have ebbed, forcing the Fed to offer a credit auction on Monday in a bid to maintain liquidity in the global banking system.
The Fed's auction, the results of which are expected to be announced on Wednesday, is being backed by supportive efforts by four other central banks, including the European Central Bank and the Bank of England.
'There are no immediate cures for the Fed to apply. There was an excess of credit extension in 2006 and early 2007 and there was a bubble in the housing market that had to be burst. Getting through this was never going to be easy,' said Mr Dick Green, a market analyst at Briefing.com.
The US central bank is hoping to soothe the banking sector's credit woes by offering a potential source of rich liquidity to stressed banks. The banks may bid for funds, but will eventually have to pay back any borrowed cash with interest albeit on favourable terms.
Investor sentiment was also dented by a government report showing a higher-than-expected jump in inflation on Friday which sparked worries the Fed may not have as much freedom to slash interest rates as it desires.
European and Asian stock markets generally fared no better than Wall Street as overseas investors are concerned a potential economic slowdown in the United States could derail global growth. -- AFP
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