US Bank Crisis Sparks Panic in Markets

18 March 2008

New York-Shares across the world have nosedived after the dramatic rescue of US investment bank Bear Stearns sparked panic in the stock markets.

The FTSE 100 closed 217.3 points down, or around 4%, refelecting the major falls elsewhere.

Bank stocks, including Barclays, Alliance & Leicester, Royal Bank of Scotland and HBOS were among the worst affected.

Japan's Nikkei stock index had earlier dropped by almost 4%, while Hong Kong's Hang Seng lost a similar amount.

The Bank of England pumped an extra pound 5 billion into the money markets to ease a freeze in lending between banks and boost the economy.

It was the BoE's first such emergency operation since the start of the credit crunch six months ago.

JPMorgan Chase is buying its big rival for just pound 1 a share - a small fraction of its previous value.

The deal values Bear Stearns, one of those at the centre of the US mortgage crisis, at about pound116m.

The news came as the Federal Reserve cut its lending rate to banks to 3.25% from 3.50%, and created a new lending facility for big investment banks.

Under the terms of the deal, the Fed will fund up to $30bn of Bear Stearns's less liquid assets.

Meanwhile, the prices of both oil and gold hit new records, with investors putting their money into commodities to keep it safer.

Oil rose to $111.8 a barrel before dropping back slightly, while gold touched $1,030 an ounce.