Three Asian banks' heavy exposure to the limping U.S. home loan sector reinforced global credit wobbles on Friday but Germany, France and Italy saw no signs of new problems.
Shares in Singapore's DBS Group Holdings, state-controlled Bank of China and its Hong Kong subsidiary, BOC Hong Kong, all dived after they revealed a combined exposure to the U.S. subprime mortgage market of almost $13 billion.
The news raised fears that Asian banks, generally risk averse following the Asian financial crisis 10 years ago, were more vulnerable to the crisis than investors had thought.
Stock markets from Sydney to Seoul fell in response, handing Asia its first losing session since a major drop last Friday.
European stocks followed suit and U.S. stock futures pointed to a lower open on Wall Street as rising confidence was brought up short by Countrywide Financial chief Angelo Mozilo's assessment the United States could be dragged into recession.
Japan's top financial diplomat tried to pour oil on troubled waters, saying the worst of the market adjustment was over, although it would linger for some time, and there was no wider economic danger.
(Volatile markets) should not negatively affect the economy, Naoyuki Shinohara, vice finance minister for international affairs, told reporters.
EUROPE MORE POSITIVE
French Economy Minster Christine Lagarde was also upbeat, saying France's banks faced no substantial risks from exposure to subprime loans. The situation in the banking sector is absolutely healthy, she told a news conference.
In France, BNP Paribas said it would reopen next week three investment funds frozen this month because U.S. subprime market volatility meant it could not value some assets.
German Finance Minister Peer Steinbrueck was equally sanguine. He said there was no evidence his country's banks faced further problems, or that the liquidity crisis was wreaking wider economic damage.
Germany has so far been the hardest hit in Europe by problems stemming from defaults on U.S. mortgages given to people with weak credit histories.
From today's perspective we have in Germany no indication that we're going to see further shocks in the banking sector, Steinbrueck told the Rheinische Post daily in an interview. The experts don't expect any spillover onto the real economy.
Last month, German small business lender IKB almost folded before banks stumped up an 8 billion euro ($10.8 billion) credit line. A group of banks also gave credit of more than 17 billion euros to help publicly-owned lender SachsenLB survive the credit market turmoil.
Prime Minister Romano Prodi chipped in, saying Italy's banking system was unscathed, ahead of a Bank of Italy report on Monday detailing any exposure to the subprime meltdown.
The 'tight-fisted' policy characteristic of our banks in handing out credit has had its advantages, Prodi was quoted as saying by Il Messaggero newspaper.
SOME CALM RESTORED
The U.S. Federal Reserve and European Central Bank continued to pump money into wobbly credit markets on Thursday, where confidence has been seeping back after a full-blown crisis earlier this month.
Central banks have restored some semblance of calm to markets -- despite Friday's tumble, Japan's Nikkei ended the week with its biggest weekly percentage gain since 2002.
Sentiment has improved compared to where it was a week or two ago but the subprime issue will keep bubbling away under the surface, said Michael Heffernan, senior client advisor and strategist at Austock Stockbroking.
Countrywide's Mozilo, who heads the biggest mortgage lender in the United States, told Reuters the U.S. housing downturn was likely to lead the country into recession.
I've seen this movie before and the ending of the movie always ends up in some form of recession, he said.
Bank of America has invested $2 billion in Countrywide, a move aimed at restoring trust in both the ailing mortgage lender and the market.
The Fed injected $17.25 billion into the banking system on Thursday, while the European Central Bank was inundated with demand for fresh cash in a money-market tender.