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Stocks face nervous start to week World markets face a nervous start to the week following the plunge in stocks in the US on Friday as concerns mounted about fallout from the US mortgage market turmoil. The late sell-off in New York followed comments by the chief financial officer of Bear Stearns, who said credit markets were as bad as he had seen in 22 years. The Wall Street bank’s board is reported to be meeting on Monday to consider the future of Warren Spector, its co-president and head of capital markets. One analyst said that if Bear made no statement before the markets opened on Monday investors would fear there was “more bad news to come”. US financial stocks were particularly badly hit on Friday, prompting calls for the Federal Reserve to intervene by cutting interest rates. At its meeting on Tuesday, some economists expect the Fed to acknowledge the risk that weakness in the US housing market could spread to the broader economy.
The Fed is expected to leave rates unchanged but US Treasury yields tumbled on Friday as the futures market priced in a strong chance of two cuts in the Fed Funds rate by the end of the year. Investors will be looking nervously for more corporate victims of the slump in US subprime mortgage securities caused by increasing late payments on home loans. In a statement to be released on Monday, Natixis, the French investment bank whose shares fell almost 10 per cent on Friday, is expected to seek to ease concerns about its exposure to US mortgages by reiterating its full-year profits guidance. Natixis has a small stake in IKB, the German bank bailed out by the government last week after suffering losses on US subprime loans. Some observers said investors had overreacted to Bear Stearns’ comments on Friday, particularly the chief financial officer ruling out share buy-backs to preserve “liquidity”. The turmoil in the credit markets was partly triggered by the collapse six weeks ago of two mortgage hedge funds run by Bear Stearns. Mr Spector, seen as the most likely successor to Jimmy Cayne, Bear’s chairman and chief executive, was also responsible for the asset management arm that ran the funds. CLICK ON THE BANNER TO
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