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ECB rate rise uncertain, Asia sub-prime fears grow

NEW YORK/LONDON – Central bank officials said market turmoil made a euro zone rate rise far from certain while three Asian banks’ heavy exposure to the limping US home loan sector reinforced global credit worries on Friday.In the US, the Federal Reserve refrained from open market operations ahead of a weekend for the first time since May, helping steady markets, while economic data from July pointed to economic strength just before credit markets began to tighten.

Major US share indexes rose more than 1.0 per cent as unexpectedly strong data on home sales and durable goods relieved anxiety about the economy.

Earlier in the day, national central bank officials said the ECB was focusing on financial market turbulence, saying it would be the decisive factor in determining whether it raises rates by a quarter point to a six-year high of 4.25 per cent.Investor nerves were kept on edge as Singapore’s

DBS Group Holdings, state-controlled Bank of China and its Hong Kong subsidiary, BOC Hong Kong , revealed a combined exposure to the US sub-prime mortgage market of almost US$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 as investors had thought.

Stock markets tumbled from Sydney to Seoul in response but later on Friday, European and US stocks were firm.

‘If there is a normalisation in the markets a rate hike is still possible. If not the ECB will wait with the next step,’ said a senior official at a euro zone national central bank.

Source: REUTERS (Business Times 25 Aug 07)

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