Panel alleges Nigeria corruption

The former government spent billions on the energy sector

The government of former Nigerian President Olusegun Obasanjo paid $50m (£25m) to non-existent companies, a parliamentary panel alleges.

The investigative committee said the money was paid as the administration said it was trying to improve the poorly performing power industry.

Committee chairman Ndidi Elumelu said the 34 companies were not registered and so did not exist.

But former ministers quizzed by the committee denied the funds were stolen.

The panel was established earlier this year to find out what happened to money spent on improving power generation between 1999 and 2007.

President Umaru Yar'Adua has said $10 billion was spent with little sign of improvement to electricity supplies.

Energy shortages

Nigeria is a big exporter of oil but suffers from severe energy shortages which produce frequent electricity cuts.

Electricity generation remains at a fraction of the amount needed by a country of 140 million people.

The effect on Nigeria, a regional superpower, has been economically devastating both for businesses and individuals, says the BBC's Alex Last in Lagos.

Nigerian power supplies are a fraction of what the country needs

Mr Yar'Adua has promised to declare "a national emergency" on power, but our correspondent says not much has happened yet.

'Not misappropriated'

The committee said the 34 non-existent companies included some with names such as "Special Projects", "Space Master" and "Sassy Fund".

Previous energy ministers were among those who appeared before the panel, including former Power and Steel Minister Liyel Imoke.

He said no money had been misappropriated.

"The impression is that it has been channelled into private pockets," he said.

"This is not correct".

Olusegun Agagu, another former power minister, conceded at a panel hearing that the performance of the power sector left much to be desired.

"To, however, generalise that nothing has been done in the last eight to nine years to improve the sector is also far from the truth," he said.

http://news.bbc.co.uk/2/hi/africa/7304028.stm

Shooting rocks main Afghan prison

Pul-e-Charkhi lies on the eastern outskirts of Kabul

Afghan security forces have sealed off the country's main high-security prison after days of unrest there.

Gunfire has been heard from the Pul-e-Charkhi prison, a huge complex built in the 1970s on the outskirts of the capital, Kabul.

Inmates are in control of parts of the prison and say they have taken two Afghan soldiers hostage.

Pul-e-Charkhi is now used to house common criminals as well as al-Qaeda and Taleban suspects.

Protest

Our correspondent says the stand off between prisoners and Afghan security forces, which began on Sunday, appears to be worsening.

Large numbers of soldiers and police have been arriving at the notorious jail which houses some of Afghanistan's most dangerous criminals and Taleban militants.

Inmates had taken control of sections of the building as part of a continuing protest against the authorities.

A number of prisoners contacted the BBC by mobile phone and said that seven inmates had been injured.

They also said that two Afghan national army soldiers had been captured and they would be killed unless mediators were sent in to resolve the dispute.

Our correspondent says it has not been possible to verify if the soldiers had been held.

There has been no official response from the Afghan government, but the defence minister told parliament an operation was being planned to raid the prison after parts of the building were overrun.

An Afghan member of parliament who visited the jail on Monday said the situation had become very tense.

The dispute has been going on for two weeks since an attempted jail-break and the arrest of a large number of prison visitors.

There have been sieges and riots in the past at the prison.

Four years ago the jail was raided by the military after some prisoners tried to escape.

http://news.bbc.co.uk/2/hi/south_asia/7303171.stm

Federal Reserve slashes US rates

Federal Reserve slashes US rates

Many economists believe the US economy is already in recession

The Federal Reserve has cut US interest rates sharply in an attempt to restore confidence to nervous financial markets and boost the ailing economy.

The central bank lowered rates to 2.25% from 3%, but the cut was smaller than financial markets had expected.

Many economists believe the US economy is already in a recession.

The Fed has taken strong action this week to avert a financial panic after investment bank Bear Stearns was forced into a fire sale to avoid collapse.

US Treasury Secretary Henry Paulson admitted earlier on Tuesday that the economy was facing a "sharp decline" at the moment, but hoped for a recovery later in the year.

Aggressive action

The Fed's action is yet another forceful move in its attempts to alleviate the liquidity crunch and to shore up a rapidly weakening economy, Arun Raha, senior economist at Swiss Re

The Fed has now lowered rates six times since mid-September, with the economy reeling from the credit crisis that was triggered by a slump in the US housing market.

"Today's policy action, combined with those taken earlier, including measures to foster market liquidity, should help to promote moderate growth over time and to mitigate the risks to economic activity," the Federal Reserve said.

US shares initially trimmed gains after the Fed's announcement but the benchmark Dow Jones industrial average later resumed its ascent.

Wall Street rallied earlier after two leading investment banks, Goldman Sachs and Lehman Brothers, reported smaller falls in profits than analysts had been expecting.

The dollar, which has been hitting record lows against the euro, gained ground.

Recession fears

The Fed is hoping its actions will stave off both a recession in the wider economy and go some way to ease unprecedented conditions in the financial system.

"The Fed's action is yet another forceful move in its attempts to alleviate the liquidity crunch and to shore up a rapidly weakening economy," said Arun Raha, senior economist at Swiss Re.

As the economy worsens, banks and financial institutions are calling in loans and becoming increasingly reluctant to lend money, particularly to borrowers considered to be high risk.

Bear Stearns got into trouble when other banks refused to lend it money over fears that it had too many bad debts due to the sub-prime mortgage crisis.

"There can be no health in the economy until the banking system is working properly," said K Daniel Libby at Sands Brother Select Access Fund.

Inflation concerns

The Fed expressed some concern about inflation in the statement that accompanied the interest decision. Analysts said this could signal that an end to the current cycle of rate cut cycle was fast approaching.

"The economy is in, or close to, a recession, but increasing oil prices have kept inflationary pressures from abating, complicating the Fed's task," said Mr Raha.

US producer prices, released on Tuesday, rose by 0.3% in February compared to the month before, but a key measure of producer core inflation rose by 0.5%, the fastest pace in well over a year.

There were also signs of opposition inside the Fed to the aggressive moves.

Two members of the central bank's rate-setting Federal Open Market Committee voted for a smaller cut in rates.

"By cutting 75 points rather than 100 points, the Fed sought to restore leadership over the market and indicate that its actions would not be entirely dictated by market expectations," the Bank of New York said.

http://news.bbc.co.uk/2/hi/business/7303404.stm

Markets rattled by bank worries

Investor confidence has been hit by Bear Stearns' problems

Markets worldwide recorded heavy losses in reaction to the emergency bailout of US investment bank Bear Stearns over the weekend.

Wall Street had a rollercoaster day, with the benchmark Dow Jones average ending in positive territory - up 0.18% - after tumbling in early trading.

European shares suffered most, with the UK's FTSE 100 index ending down 3.9%.

Investors fear that the collapse of one of Wall Street's biggest names means that the credit crunch is escalating.

Rate cut expected

In a further attempt to calm credit markets and ward off a recession, the Federal Reserve is expected to cut its key interest rate by an unprecedented one percentage point when it meets on Tuesday.

This would be on top of Sunday's move to reduce its separate discount rate - the interest rate at which it lends to commercial banks - from 3.5% to 3.25%

The Fed is desperately trying to restore confidence in the banking sector.

As the economy worsens, banks and financial institutions are calling in loans and becoming increasingly reluctant to lend money to borrowers, particularly those considered to be high risk.

Bear Stearns got into trouble when other banks refused to lend it money over fears that it had too many bad debts due to the sub-prime mortgage crisis.

Banks hammered

US, UK and European banks were hammered: shares in Lehman Brothers fell 19%, UBS lost 10%, HBOS 12.7% and Germany's Commerzbank fell 6.8%.

At the end of the day the Federal Reserve is stepping up every time and creating a process by which the markets will be allowed to recover Michael Williams, Tocqueville Asset Management Send us your comments

However, the Dow Jones ended up 21.16 points at 11,972.25 after tumbling 194 points at the start of trade as investors took heart from JP Morgan's takeover of Bear Stearns, which was backed by the Federal Reserve.

"Investment banks are getting their heads handed to them, but at the end of the day the Federal Reserve is stepping up every time and creating a process by which the markets will be allowed to recover," said Michael Williams at Tocqueville Asset Management in New York.

The broader Standard & Poor's 500 Index fell 0.90%, while the Nasdaq Composite Index, dominated by technology stocks, closed down 1.6%.

Earlier, France's Cac 40 closed down 3.5% and Frankfurt's Dax tumbled 4.1%.

Bush urges calm

US President George Bush attempted to reassure investors on Monday.

"We are in challenging times," Mr Bush said at a press conference.

But he added that the US authorities were "on top of the situation" but "when need be, will act decisively, in a way that continues to bring order to the financial markets."

"In the long run, our economy is going to be fine".

Under scrutiny after the steep fall in its share price, Lehman Brothers also attempted to reassure investors on Monday about its financial situation.

"Our liquidity position has been and continues to be very strong," Lehman Brothers said in a statement.

Asian stocks also fell, with Tokyo's Nikkei average closing 3.7% lower and Hong Kong's Hang Seng slumping 5.2%.

In Mumbai, the Sensex was down 6.5%.

Central bank help

Central banks have been trying to restore some confidence to the financial system.

On Sunday, the US Federal Reserve reduced its discount rate - the interest rate at which it lends to commercial banks - from 3.5% to 3.25% and offered to buy up the assets of other troubled banks.

To ease fears in the UK, the Bank of England on Monday made an extra £5bn ($10bn) available for UK banks to borrow.

Banks scrambled to access the funds and the Bank of England's offer was nearly five times over-subscribed.

"Given the money market conditions this morning, the situation is very serious and represents a new and unwanted twist to the credit squeeze," said Philip Shaw, chief economist at Investec.

"Five billion pounds represents a substantial sum."

Overnight inter-bank dollar lending rates have risen sharply in London to levels not seen since 11 September 2001, reflecting growing unease about the health of the US financial system.

Bear Stearns

Investors' confidence has been hit by the problems at Bear Stearns.

Profile: Bear Stearns

The investment bank was forced to seek emergency funding from the US Federal Reserve last week and was sold over the weekend to JP Morgan Chase for a tiny fraction of its earlier value.

The Fed has agreed to take over up to $30bn of Bear Stearns' assets, removing the risk for JP Morgan.

The quick sale failed to calm investors' nerves who, this week, will receive earnings announcements from other big US investment banks, including Lehman Brothers, Goldman Sachs and Morgan Stanley.

"There is persistent credit uncertainty. Market players have been repeatedly let down which shows the sub-prime mortgage problems are so deep-rooted," said Atsuji Ohara, global strategist at Shinko Securities in Tokyo.

"Just buying an investment bank does not solve the problem," he added.

Dollar woes

Worries about the credit crisis and the health of the banking industry also undermined the dollar.

It fell to 95.72 yen, its lowest level in more than 12 years. The euro hit a record against the dollar, buying $1.5904.

The weak dollar boosted commodities, with oil rising to another record, light sweet crude traded at $111.80 before falling back.

The dollar is also falling because of the expectation that the US Fed will cut interest rates further, making it less attractive to hold dollars as opposed to other currencies.

http://news.bbc.co.uk/2/hi/business/7300017.stm

Ugandan rebel leader leaves base

Joseph Kony is wanted on war crimes charges by the ICC

Ugandan rebel Lord's Resistance Army leader Joseph Kony has moved to the Central African Republic from his Democratic Republic of Congo base.

Ugandan Minister of State for Defence Ruth Nankabirwa said that by doing so, he was violating a ceasefire deal.

A peace agreement is due to be signed at the end of the month to end the 22-year rebellion in northern Uganda and she expressed fears he may not attend.

The brutal conflict has left thousands dead and nearly two million displaced.

"We are concerned because the CAR is far away from the gazetted area where they are expected to assemble," Mrs Nankabirwa told the BBC's Focus on Africa.

Some LRA rebels are stationed in CAR, but she expressed concern that they were continuing to violate the ceasefire and were not serious about peace.

The LRA say this is an attempt to discredit them.

"Let's wait for the D-day when we are expected to sign the peace agreement and see whether they will come to sign," said Mrs Nankabirwa.

Last week, President Yoweri Museveni said LRA leaders should face local justice.

The LRA insists that the war crimes indictments placed on its leaders at the International Criminal Court are lifted before they sign the deal.

http://news.bbc.co.uk/2/hi/africa/7301399.stm

Tibet violence 'concerns' India

Mr Mukherjee's comments have not pleased some opposition parties

Politicians in India have expressed concern over the Chinese response to protests inside Tibet.

In a debate in the Indian parliament, Foreign Minister Pranab Mukherjee said he was distressed by reports of the violence in the Tibetan capital, Lhasa.

He said that he hoped the troubles would be solved through dialogue and non-violent means.

Meanwhile police in Nepal have dispersed a crowd of 100 Tibetan protestors and Buddhist monks.

Televised pictures showed police beating some of the protesters and detaining dozens of others in the capital, Kathmandu.

'Inadequate response'

"We are distressed by reports of the unsettled situation and violence in Lhasa and by the deaths of innocent people," Mr Mukherjee told the Indian parliament during a debate on Tibet.

"We hope all those involved will work to improve the situation and remove the causes of such trouble in Tibet, which is an autonomous region of China, through dialogue and non-violent means," he said.

His remarks were criticised by some opposition parties, who described them as an "inadequate response".

Exiled Tibetans have staged several protests in Nepal

"Over 100 innocent protesters have been massacred in Lhasa in the past one week by the Chinese security forces which are involved in ethnic cleansing," Bharatiya National Party MP Vijay Kumar Malhotra said.

"This house should condemn the incidents," Mr Malhotra said.

Mr Mukherjee reiterated that India's policy of non-interference in China was still the same despite recent events.

"New Delhi's policy on China and Tibet has remained unchanged since 1959 despite various political parties being in power at the centre since then," he said as opposition leaders staged a symbolic walkout.

Scuffles

The BBC's Charles Haviland in Kathmandu says that Monday's protest by Tibetans was the first time in a series of demonstrations in Nepal that they have been confronted by police firing teargas.

Our correspondent says that there were running battles between demonstrators and police, with protesters being baton charged and people in the crowd being dragged along the ground.

Several people were injured in scuffles and a monk was seen with blood streaming down his face.

http://news.bbc.co.uk/2/hi/south_asia/7300661.stm

UN calls for restraint in Tibet

Guide: Life in Tibet Tibetans describe unrest Chinese react to violence

UN Secretary General Ban Ki-moon has called on both Chinese forces and demonstrators in Tibet to show restraint after days of rioting.

Mr Ban urged "a peaceful resolution", but made it clear there were no plans for UN intervention.

Up to 80 protesters are reported to have died in the Chinese crackdown.

A Chinese deadline for protesters to surrender has passed, but large numbers of police are patrolling the streets of the regional capital, Lhasa.

Pro-Tibet activists have been demonstrating outside Chinese embassies across the world.

'Conflicting numbers'

Speaking to reporters in New York, Mr Ban said he had met the Chinese ambassador to express his concern.

TIBET DIVIDE China says Tibet was always part of its territory Tibet enjoyed long periods of autonomy before 20th century 1950: China launched a military assault Opposition to Chinese rule led to a bloody uprising in 1959 Tibet's spiritual leader the Dalai Lama fled to India Q&A: China and Tibet International reaction Tibet adds to Olympic woes

He also had an informal lunch with members of the Security Council, where the issue of Tibet was not on the agenda.

Mr Ban said his office would continuously monitor events inside Tibet but there was no room for intervention or further action by UN officials.

Russia's UN Ambassador, Vitaly Churkin, said Tibet was "not a matter for the Security Council".

His country - a veto-wielding permanent member like China - is chairing the council this month.

UN spokeswoman Michele Montas said on Monday that the body had no independent reports of what was happening in Tibet.

"We have completely conflicting numbers in terms of how many people died," she added.

The exiled Tibetan government says at least 80 protesters died in a Chinese crackdown beginning last week.

Eyewitness: Lhasa 'in cinders' Send us your comments

The Beijing-backed Tibetan regional government has confirmed the deaths of 13 "innocent civilians", blaming them on mobs in Lhasa, and insists security forces have not used lethal weapons against any protesters.

With China continuing to ban all foreigners from getting into Tibet, the BBC's James Reynolds has been visiting neighbouring provinces where half the Tibetan people live.

In one major city, our correspondent saw police cars at almost every junction and passed a jeep carrying soldiers with shotguns and camouflaged flak jackets.

China calls the Tibetan protests "deliberate sabotage" and many ordinary Chinese people seem to agree, our correspondent adds.

One man told the BBC he wanted the Communist Party to send the army to Tibet to take control.

Another said that the demonstrations were planned by the Dalai Lama to ruin the Beijing Olympic Games.

'Terrible cost'

US Secretary of State Condoleezza Rice has called on Beijing to open talks with the Dalai Lama, who heads the Tibetan government-in-exile from India.

The UK's Minister for Africa, Asia and the United Nations, Mark Malloch-Brown, warned China risked wrecking its international image as the host of this summer's Olympic Games if the Tibet violence escalated.

"With the Olympics ahead... they really will pay a terrible cost in international public opinion if they're seen to violently crack down on dissidents," he told the BBC.

However, the European Union's 27 sports ministers have dismissed the idea of a boycott over Tibet.

"The only people who are punished in a boycott are athletes," said Pat Hickey, president of the European Olympic Committee.

China says Tibet has always been part of its territory but Tibet enjoyed long periods of autonomy before the 20th Century and many Tibetans remain loyal to the Dalai Lama, who fled in 1959.

http://news.bbc.co.uk/2/hi/asia-pacific/7301912.stm

Pakistan border strike 'kills 16'

At least 16 people have been killed in a missile strike on a building near Pakistan's northern border with Afghanistan, state television has said.

The attack took place in the South Waziristan region, where tribal militants are based, Reuters news agency reported residents as saying.

The Pakistani state TV report said several missiles destroyed the house of a suspected militant leader.

Reuters reported the military saying seven militants were among the dead.

"Initial reports suggest militants were hiding there and seven of them were killed and several wounded," an unnamed military official told the news agency.

A local tribesman said foreign militants were believed to be staying at the compound, in a village near Wana in South Waziristan.

"Militants have cordoned the blast site and are taking out bodies from the rubble," the tribesman told AFP news agency.

"The missile has left only part of a boundary wall intact and turned the compound into a pile of debris," he said.

War on militants

It was not clear who launched the strike.

A local tribesman, Rahim Khan, told the Associated Press that the missiles were fired from an unmanned drone aircraft.

US forces, operating in neighbouring Afghanistan, are believed to have been behind previous strikes in Pakistan's border region.

In February, at least 12 people - including suspected militants - were killed in a missile attack on a house near the Afghan border.

A month earlier, a senior al-Qaeda leader, Abu Laith al-Libi, was killed in a strike in North Waziristan.

The US considers strikes in the tribal border region - the heartland of al-Qaeda and the Taleban - to be vital in its war against Islamist militancy.

However, the Pentagon seldom confirms them, since Pakistan publicly opposes any US strike on its territory.

http://news.bbc.co.uk/2/hi/south_asia/7299352.stm

Pakistan restaurant hit by blast

Following the blast, bystanders and guards rushed to help the injured Scene of bombing

A bomb blast at a restaurant in Islamabad has killed a Turkish woman and injured at least 10 other people, according to security officials.

The bomb exploded at the Luna Caprese Italian restaurant in the centre of the Pakistani capital.

It is the first attack that has apparently targeted foreigners in Islamabad since 2002, analysts say.

Two foreign diplomats, one from the US and one from the UK, were among the injured, their governments said.

Those injured also include nationals from Japan, Canada and Turkey, officials say. Five are US nationals, according to police.

'Deafening'

Witnesses said Saturday evening's explosion occurred in a garden at the back of the restaurant, leaving a crater in the ground and blowing out the windows.

Part of the back wall of the restaurant also collapsed.

"It was deafening," Tariq Mahmood, a waiter at the restaurant, told Reuters news agency.

"We pulled out at least eight people from the wreckage. Most of them were foreigners," he said.

Police evacuated the restaurant and closed off the building following the explosion.

Islamabad and nearby Rawalpindi have been the scene of several recent attacks on government and military personnel.

They have been blamed on pro-Taleban militants fighting the Pakistani army in the country's tribal regions near the border with Afghanistan.

Luna Caprese is located in a busy shopping area, and is one of the few restaurants that serve alcohol in Islamabad.

There have been concerns raised recently by security officials over the lack of protection of such venues, the BBC's Syed Shoaib Hasan reports from Pakistan.

Foreigners, especially those from Western countries, were advised last year to stay away from public places and popular restaurants, he says.

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Deadly crane collapse in New York

The crane crushed the building that it landed on Enlarge Image

A construction crane has toppled into apartment blocks in New York, killing at least four people and injuring 10, Mayor Michael Bloomberg has said.

He told reporters that three of the injured were in a serious condition.

He said the collapsing crane - which had stood 19 storeys high - "basically just flattened" a low-rise apartment building on Manhattan's East Side.

The area has been evacuated, and a rescue operation is under way amid fears that people are trapped.

Mr Bloomberg described the incident as a "tragic event" and said the crane had broken during a routine operation to extend its height, by inserting a section and raising its top part.

"This accident is one of the worst the city has had," Mr Bloomberg said.

I heard a big crash, and I saw dust immediately. Bricks were flying through the air Maureen Shey, eyewitness

"Our thoughts go to the families. I hope we will not find other victims."

"Everybody was running, running. It was devastating," witness Greta Welkhammer told local TV station NY1.

The crane "literally split in half", she said.

John PlaGreco, who owns Fu Bar in the crushed low-rise building, told the Associated Press he feared one of his employees was dead in the rubble.

A witnesses said the crane broke in half

"Our bar is done," he said. "The crane crashed the whole building. If I wasn't watching a Yankees game, I would've come to work early and gotten killed."

The collapse also overturned and crushed cars, left rubble piled high and caused a huge dust cloud to rise over the neighbourhood.

Firefighters with sniffer dogs were scouring the rubble for signs of further victims.

Fire Commissioner Nicholas Scoppetta said the search was "a painstaking hand operation, as we try to remove the rubble so we don't cause further collapse or injure anyone who may still be in that building".

Load roar

Stephen Kaplan, an owner of the Reliance Construction Group, told AP the company had contracted the work out to another company and described the incident as "an absolute freak accident".

Ten people were injured - three were said to be seriously hurt

He said a piece of steel fell and sheared off one of the ties holding the crane to the building, causing it to detach and topple.

Residents of the area reported hearing a loud roar as the crane came down.

"First I heard a rumble, and it increased, and then it increased," said Bill Reilly, who lives nearby. "It continued building in strength... it shook the six-storey brick building that I live in."

Maureen Shey, who lives opposite the under-construction building from which the crane fell, said: "I heard a big crash, and I saw dust immediately. Bricks were flying through the air.

"I saw the whole thing. I thought the crane was coming in my window."

The crane missed her building.

http://news.bbc.co.uk/2/hi/americas/7299007.stm

Bear Stearns gets emergency funds

Bear Stearns is one of the best-known US Wall Street firms

US bank Bear Stearns has got emergency funding, in a move that raises fears that one of Wall Street's biggest names is on the verge of collapsing.

JP Morgan Chase will provide the money to Bear Stearns for 28 days with the Federal Reserve of New York's backing.

JP Morgan is also trying to get long-term financing for Bear Stearns.

Bear Stearns' problems stem from the global credit crunch and the worry is that other lenders may also have major funding problems, analysts said.

Withdrawn funds

Bear Stearns is Wall Street's fifth largest investment bank, and has been at the centre of the US mortgage debt crisis. Recently, speculation had intensified that it was struggling to fund its daily business.

Our liquidity position in the last 24 hours had significantly deteriorated Bear Stearns Q&A: Bear Stearns crisis

BBC business editor Robert Peston said Bear Stearns had been taken to the brink of insolvency over the past 24 hours by a sudden collapse in confidence on the part of its hedge fund clients.

As a result, these funds rushed to withdraw their assets.

"The rescue of Bear Stearns demonstrates that the worst of the global credit crunch is not yet behind us," he said.

He says that if Bear Stearns had been allowed to collapse, it could have put the whole financial system at risk.

Bear Stearns shares dropped as much as 53% on the news before finishing Friday trading down 46%.

'Other banks'

The credit crunch was caused because banks became less willing to lend to each other after they suffered large losses on investments linked to the US housing market, and the sub-prime sector in particular.

MAIN SUB-PRIME LOSSES SO FAR Citigroup: $18bn Merrill Lynch: $14.1bn UBS: $13.5bn Morgan Stanley $9.4bn HSBC: $3.4bn Bear Stearns: $3.2bn Deutsche Bank: $3.2bn Bank of America: $3bn Barclays: $2.6bn Royal Bank of Scotland: $2.6bn Freddie Mac: $2bn JP Morgan Chase: $3.2bn Credit Suisse: $1bn Wachovia: $1.1bn IKB: $2.6bn Paribas: $197m Source: Company reports Timeline: Sub-prime crisis

Sub-prime lenders focus on clients with poor or non-existent credit histories, and a record number of borrowers have defaulted on loans.

The subsequent freezing-up of the credit markets created problems for a number of companies which relied on borrowing money to fund their business.

In the UK, Northern Rock ran into trouble when its line of relatively cheap credit dried up.

At the end of last year, Bear Stearns reported that it had made its first ever quarterly loss after buying investments linked to the US mortgage market.

It was one of the first to admit it had problems linked to sub-prime mortgages, after two of its hedge funds had to be bailed out.

Analysts said that Bear Stearns may not be the only bank suffering in the US.

"The situation is very much that Bear Stearns was very close to the edge and it was much worse than we all thought," said Michael Klawitter of Dresdner Kleinwort.

"It raises severe concerns over other banks."

'Restore confidence'

Alan Schwartz, president and chief executive officer of Bear Stearns, said: "Bear Stearns has been the subject of a multitude of market rumours regarding our liquidity.

"We have tried to confront and dispel these rumours and parse fact from fiction.

This is America's Northern Rock Robert Peston, BBC business editor

"Amidst this market chatter, our liquidity position in the last 24 hours had significantly deteriorated," he added.

"We took this important step to restore confidence in us in the marketplace, strengthen our liquidity and allow us to continue normal operations."

BBC business editor Robert Peston said that the move by JP Morgan and the Fed of New York was essentially a central bank bailout.

"In just the last 24 hours Bear Stearns came close to running out of the cash or liquidity it needs to meet its daily requirements," he said.

"So enter the US Federal Reserve. It is promising to supply whatever liquidity is required by JP Morgan Chase, the leading bank, to help Morgan provide whatever funds are required by Bear Stearns.

"Since JP Morgan is saying there is no risk to its shareholders, this represents a central bank bailout of Bear Stearns.

"This is America's Northern Rock."

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