Finance chiefs vie to soothe mortgage, credit 'crisis'

Finance chiefs and international banks voiced caution Thursday, reminding investors that stock markets can fall as well as rise, as fears about the distressed US mortgage market and a credit "crisis" continued to unsettle global markets.

Stock markets in the United States, Europe, Asia and Central America have endured volatile trading this week as worries about America's multitrillion-dollar mortgage sector and tightening credit have triggered broader concern.

Analysts say market swings have been magnified because of US investments held by foreign investors and banks.

French banking group Societe Generale said Thursday it had "low exposure to the current credit market crisis," partly because of its limited US business. Switzerland's second-largest bank, Credit Suisse, said it remained "very cautious" about US mortgage market woes.

In Bangkok, the Bank of Thailand's assistant governor Suchada Kirakul said: "The BoT believes that Thailand will not be affected by the situation in the US."

Market volatility also overshadowed the opening session of a meeting of Asia Pacific Economic Cooperation (APEC) finance ministers in Coolum, Australia.

"Corrections happen on stock markets, stock markets are not a one-way bet, people should know that," Australian Treasurer Peter Costello warned.

The International Monetary Fund's deputy managing director, John Lipsky, who is also attending the APEC summit, said investors had become more risk-averse.

"Even though our broader outlook remains very favorable ... we are saying the risks are balanced to the downside and we will be watching that carefully," Lipsky said.

The global stock jitters have partly been tied to so-called subprime mortgages granted to Americans with weak finances during the property boom of recent years which abruptly ran out of steam in early 2006.

Foreclosures on such mortgages have leapt sharply in the past six months, contributing to an ongoing downturn in the US housing market that has affected millions of middle-class and wealthy homeowners.

Some of Wall Street's biggest banks, including Goldman Sachs and Bear Stearns, have already felt pain from the housing slump which has bankrupted some mortgage firms.

Wall Street shares boasted sharp gains in afternoon trading Thursday with the Dow Jones Industrial Average closing up over 100 points at 13,463.33.

The Dow had plummeted 1.10 percent on Tuesday after American Home Mortgage Investment revealed it was struggling to raise money and unable to tap credit facilities.

Analysts say US mortgage woes have made banks and other lenders more wary about extending credit, making it harder for companies and big investors to access fresh capital and make new investments.

The tightening credit conditions have spilled out of the mortgage market and are now affecting other sectors and securities.

US media reports say the credit crunch is also denting the operations of some large hedge funds.

Analysts at Lehman Brothers suggested the housing hangover may worsen.

"Dismal data suggest further pain ahead for the housing market. Fears of a broader credit crunch and greater losses on Alt-A mortgages continue to rattle financial markets. We have tweaked our forecasts to show a slightly deeper housing recession," the Lehman analysts said in a briefing note to clients.

US finance and banking chiefs have nonetheless tried to reassure spooked investors.

Federal Reserve chairman Ben Bernanke told Congress last month that he foresees "significant financial losses" from failed subprime real estate loans, but he said this would only have a limited effect on the world's biggest economy.

US Treasury Secretary Henry Paulson, a former Goldman Sachs chief executive, said last Friday that the markets had received "a wake-up call."

Paulson said some market "excess" was being reined in.

"What we're seeing is risk being repriced, and a different perspective on risk, which I think is healthy," the Treasury secretary said.

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