WB warns of financial crisis' effects

International Monetary Fund chief Dominique Strauss-Kahn said the IMF’s upcoming World Economic Outlook would show a marked fall in growth and warned the crisis could trigger famines in Africa and Latin America.

“The consequences may be extremely serious because they will be counted in terms of famine or malnutrition in children.”

The turmoil emerged after the collapse of loans to would-be US homebuyers with dark credit histories and caused a chaotic chain reaction, revealing how cheap credit throughout the financial system had created a massive bubble.

The US government agreed Friday to buy up 700 billion dollars of bad mortgages and other assets from banks, freeing them up to start lending again. But President George W. Bush has warned the impact will not be felt immediately.

In Belgium, trading in shares of Fortis were suspended, the day after BNP Paribas took a controlling interest in the troubled finance group under an emergency deal with the Belgian and Luxembourg governments.

Central banks continued to pump tens of billions of dollars into interbank money markets that are now essentially on life-support from state institutions because commercial banks are too frightened to lend to each other.

In a bid to increase liquidity, the US Federal Reserve said it would begin to pay interest on bank deposits for the first time and expand its refinancing operations for commercial banks to 600 billion dollars.

Meanwhile Bank of America said it was ready to spend up to 8.4 billion dollars to restructure the loan portfolio of mortgage giant Countrywide after settlement of a lawsuit targeting the firm’s “predatory” lending practices.

The bank said the programme was designed to help borrowers who financed their homes with high-risk subprime loans serviced by Countrywide, which it acquired in July.

The London FTSE 100 index of leading shares fell 7.85 percent to 4,589.19 points while in Paris the CAC 40 index shed 9.04 percent, its heaviest one-day loss since its creation in 1988, to 3,711.98 points.

The Frankfurt DAX lost 7.07 percent at 5,387.01 points. In Dublin the Irish stock exchange’s main ISEQ index ended with a loss of 9.59 percent at 3,565.54, with banks taking the hardest hit.

Markets in Amsterdam, Madrid, Milan and Brussels were down between 6.0 and 9.14 percent at the end of the day.

Iceland’s stock market suspended trading in all financial shares including three major banks on Monday amid government talks on a possible rescue for the banking sector.

Russia’s dollar-denominated RTS stock market suffered its worst-ever one-day fall, closing down 19.10 percent, a spokesman for the bourse told AFP.

“It was the biggest one-day fall” ever, the spokesman said after the index closed at 866.39 points, 65 percent down from an all-time high posted in May this year.

Nordic markets also took a heavy beating.