Stock markets fell today as the ECB injected cash into the banking system to prevent it from seizing up and amid fears the credit problems which began with the US sub-prime mortgage market are accelerating.
The European Central Bank pumped a record €94.8 billion into Europe's money markets to improve liquidity after France's biggest listed bank, BNP Paribas, froze withdrawals from three funds.
It cited problems in the subprime market in the US - where many mortgage holders on low incomes have defaulted on their payments.
The news sent shivers through markets already nervous that troubles in US mortgages would spread globally, hitting banks and the broader financial system.
The ISEQ in Dublin closed down 192 points - just over 2% - at 8,701, with financial stocks down as much as 4%.
In London the FTSE100 closed down 122 points at 6,271 - a fall of nearly 2% and the Frankfurt and Paris markets also lost 2%.
In mid-day trading the Dow Jones and the Nasdaq were both down around 1.3%.
The sub prime fall out is a problem for banks in the US and Europe as many have bought these loans which are now worth a lot less than what they paid for them.
The Federal Reserve also added $24 billion in temporary reserves to the US banking system today.
US President George W. Bush had earlier sought to calm fears that a credit market squeeze would unpick economic growth, telling a news conference both the global and US economy are strong and there is enough liquidity in the system.
Analysts said investors were rushing to cash because it was becoming more difficult to draw on credit facilities.
'This is an old-fashioned credit crunch,' Chris Low, the chief economist at FTN Financial in New York, said in a report today.
'This is not a small thing. A credit crunch, when the short-term credit markets seize up, is extraordinarily serious, almost always the precursor of a significant recession', he warned.
World oil prices extended losses, falling below $70 a barrel in London for the first time since June, on worries that energy demand may weaken amid US economic woes.
