Banks fail to calm nerves

Dubai: International stock markets on Thursday gave a belated thumbs-down to coordinated action by major central banks to boost confidence.

Asian markets fell by roughly two per cent, with similar declines in European bourses. In the US main indexes were marginally down in morning trade.

On Wednesday the US Federal Reserve led an announcement of targeted injections of banking liquidity, running into tens of billions of dollars.

Initial market reaction was positive. Thursday's negative response reflected a sober reappraisal that the intervention itself suggests there's a big problem.

The global financial mood is fragile, as banks curtail lending exposures for fear that counterparts may be damaged by the credit crunch. That was sparked by the "subprime" crisis which struck in the US. A weakening US economy led to rising defaults by overextended borrowers on housing loans, hammering the value of assets whose higher returns were based on their lower credit ratings.

That in turn stemmed from the pursuit by banks of higher yields in the face of persistently low global interest rates on conventional loans. Institutions such as Citibank, Merrill Lynch and HSBC have taken hits to their profitability but losses by others as yet undeclared.