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'Too early' to herald upturn as recovery; in association with RBS.

Byline: By Iain Laing

INVESTORS held their nerve yesterday with stocks around the world edging up after weeks of turmoil. The FTSE 100 Index closed 14.5 points higher at 6078.7, but this was off the 100-point high seen earlier in the session as investors swooped to snap up cheap shares. European markets also showed small signs of improvement, buoyed by strong gains in Tokyo and Hong Kong.

The tentative movements gave weight to the widespread belief that Friday's 4% jump on the FTSE 100 was nothing more than a "dead cat bounce" and things would get worse before they improved convincingly. The FTSE 100 Index is still more than 100 points off where it started the year.

The US Federal Reserve's cut in the rate at which it lends to banks appears to have stalled the chaos triggered by the rise in US home loan defaults. EU spokesperson Amelia Torres said stocks appeared to be calmer on Monday, but said that it was too early to predict what impact the turmoil would have on the EU.

But US Republican senator Richard Shelby, a former chairman of the US Senate's banking and housing committee, said the crisis would worsen before things improved. He said that some firms would "not survive" the current crisis. Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, said it was too early to herald the upturn as a recovery.

"It is not a recovery at this stage. There are still questions over the ongoing intervention to reassure markets and we are still no nearer to knowing the extent of the credit problems.

It will be a while yet before confidence returns."

Meanwhile, after being one of the biggest fallers last week Northern Rock closed up 1% amid speculation that it could take advantage of the Fed's cut in inter-bank lending rates and buy cheaper funds in the US wholesale markets. There was an initial 4% rise in the Newcastle-based bank's price and some dealers noted renewed speculation that Lloyds TSB or some other takeover predator may be circling a company which has seen a dramatic fall in value this year.

Wall Street fluctuated in early trading as investors tried to asses whether the Federal Reserve was likely to keep cutting borrowing rates. The central bank also injected a further USEUR3.5bn (pounds 1.76bn) into the banking system shortly after US markets opened.

And research showed that private investors started taking shelter from stock market volatility months ahead of the turbulence now rocking share prices. Individual UK investors sold a net pounds 5.9bn of equity holdings in the eight months to the end of July and turned to stocks which were less affected by bad economic news and market turmoil, according to a study by Capita Registrars.
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Title Annotation:Business
Publication:The Journal (Newcastle, England)
Date:Aug 21, 2007
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