Europe does not need a US-style bail-out of banks, but must introduce stricter financial supervision, a top EU official has said.

Economy commissioner Joaquin Almunia said mimicking the $700bn US plan to unfreeze credit markets was unnecessary because the situation was “less acute”.

Bolstering supervision rules would help boost confidence and stabilise volatile markets, Mr Almunia added.

The US Treasury and Federal Reserve are seeking rescue fund approval.

It could buy bad debt from financial institutions with “significant operations in the US”.

The fund would aim to sell off these mortgage-related debts in the future when, the Treasury says, their value might have risen.

‘Confidence fall’

France’s state secretary for European affairs, Jean-Pierre Jouyet, said the European financial system was “still stable and doesn’t need this kind of measure”.

“The latest events in financial markets have made it clear that the current model of regulation and supervision needs to be revamped” Joaquin Almunia

“We have to be prepared to intervene where necessary,” he said.

Mr Jouyet, speaking on behalf of the French EU presidency, said increased financial regulation was crucial.

“This laissez-faire attitude will not benefit anyone. It’s too late for that. We now need to consider the extent of the risk, the power of the regulatory authorities and the type of intervention.”

Mr Almunia said the “dramatic fall in confidence” had been created by banks’ lack of transparency and regulators inability to see what was going on.

Banks have been reluctant to lend to each other – prompting central banks to inject billions into global markets to increase liquidity.

“The latest events in financial markets have made it clear that the current model of regulation and supervision needs to be revamped,” Mr Almunia said.

‘Urgent’

In October the European Commission will propose new rules governing how much banks must keep in reserves, and set rule son how regulators should act if a bank is in danger of collapse.

Credit agencies – which have been partly blamed for the credit crisis for the way they have listed risky debts as safe – are also likely to become an EU target.

Better financial rules were “more urgent than ever before” and “could go a long way to restore confidence quicker than expected and limit the damage to our economies,” Mr Almunia said.

News reported by The BBC

The US central bank has left interest rates unchanged at 2%, citing inflation concerns and rejecting calls for a cut.

While the Federal Reserve had been tipped to leave rates on hold, analysts said a cut looked more likely after Lehman Brothers filed for bankruptcy.

The Fed has sought to soothe nerves and earlier injected $70bn (£39bn) into markets to boost liquidity.

Central banks worldwide have faced the twin threat of quickening inflation and a wider economic slowdown.

“The downside risks to growth and the upside risks to inflation are both of significant concern to the committee,” the bank’s officials said.

Michael Wallace, an analyst at Action Economics said: “The Fed’s statement largely resisted market pressure for a more substantial capitulation.”

He said the assessment was “defiantly set at neutral”, in expressing worries about both slowing economic growth and inflation.

The decision to leave rates at 2%, as it has been since April, was a unanimous move.

US shares were volatile with the leading Dow Jones Industrial Average down 106 points to 10,811 after the news.

However, it later ended more than 140 points higher at 11,059.02 as investors interpreted the Fed’s decision as a sign that the economy was less fragile than some had feared.

Another factor boosting the market were reports that insurance giant AIG might be able to access a loan from the Federal Reserve, which would prevent the firm from collapsing.

Investment firm Lehman Brothers filed for bankruptcy on Monday, triggering market jitters and prompting a sharp fall in shares worldwide.

Fears have been raised that AIG could be the next firm to fold.

Serious risk

In light of such turmoil, certain traders had hoped the central bank would cut rates in a bid to boost the economy and warned that the Fed’s latest move could be seen negatively.

Ian Shepherdson, lead US economist at High Frequency Economics said: “Not to acknowledge the catastrophes of the next few days runs the very serious risk that the Fed will be seen as Nero, fiddling while Wall Street burns.”

While the Federal Reserve kept interest rates unchanged on Tuesday, it noted that stresses on financial markets had grown sharply and added that it would take further action if needed.

The central bank said “strains in financial markets have increased significantly and labour markets have weakened further”.

News reported by The BBC

Market turmoil after Lehman Brothers filed for bankruptcy has raised doubts over what the US central bank will do at its imminent rate-setting meeting.

Economists said the Federal Reserve might lower interest rates, having earlier expected them to stay on hold.

Markets worldwide slumped on Monday with the Dow Jones Industrial Average closing down more than 500 points.

Faced with the twin threats of high inflation and a slowdown, the bank kept interest rates on hold at 2% in August.

Lehman Brothers – the fourth largest US investment firm – filed for bankruptcy after failing to find a buyer at the weekend.

A main worry is that Lehman’s bankruptcy will make it even harder to gain access to credit – hitting both other large lenders but also small firms and US homebuyers.

“It puts a Fed rate cut back on the table” said Stuart Hoffman, lead economist at PNC Financial Services group.

A group of leading banks, including JP Morgan, Goldman Sachs and Citigroup, developed a $70bn (£38.9bn) pool that banks or brokerages can tap into to boost liquidity.

And the Federal Reserve took steps to improve access to emergency credit for struggling financial companies, by increasing the types of securities financial institutions could use to gain emergency funding.

Stocks falls

Lehman’s demise was not the only news creating market jitters on Monday, before which analysts had expected interest rates to remain on hold.

“This is the result of the mania for deregulation which began when Reagan was president” David Stowell, Portland, Oregon

Send us your commentsThe future of insurance giant AIG remained unsure, after reports that it had sought $40bn in emergency funding over the weekend from the government to shore up its finances.

Later on Monday the firm gained access to $20bn, thanks to New York State approval.

And Bank of America announced that it would buy Merrill Lynch in a $50bn deal.

Such uncertainty over the state of the markets and in particular key financial institutions prompted stocks worldwide to see sharp falls.

While the Dow Jones was down some 4% on Monday, the Standard & Poor’s 500 index shed 4.69% and the Nasdaq composite index ended 3.60% lower.

Leading European indexes had ended lower, including the UK’s FTSE 100 index which was 3.92% down.

News reported by The BBC

The US economy grew at a revised 3.3% annually in the second quarter of 2008, the Commerce Department said, much higher than its first estimate of 1.9%.

The rebound was linked to strong US exports, helped by the weak dollar, while government tax rebates also boosted consumer spending.

GDP grew at a rate of 0.9% in the first quarter, after a 0.2% contraction in the last three months of 2007.

The Federal Reserve has warned the economy will remain weak this year.

“While we’re not out of the woods yet, maybe we’re beginning to see some sunlight,” said John Wilson, equity strategist at Morgan Keegan.

“At some point, the market will begin to look through the trough and gauge the strength of the coming upturn.”

‘No recession’

The data showed that exports grew at an annualised rate of 13.2%, higher than the government’s initial estimate of 9.2%.

Imports fell at a rate of 7.6% as the US economic slowdown reduced demands for goods made overseas.

The improved trade balance added 3.1 percentage points to second-quarter GDP, the biggest since 1980.

The slowdown in the housing market was evident, as builders cut back and businesses reduced their spending.

Consumer spending, boosted by the government’s $600 tax rebate payments, rose by 1.7%, slightly higher than the previous quarter’s 1.5%.

Some observers said that the figures lent support to the argument that the US was not heading for a recession.

“For a recession the economy is certainly growing very quickly,” said Avery Shenfeld, senior economist at CIBC World Markets.

“A lot of that growth is driven off exports and pessimists might say that can’t continue during slowing growth overseas.

“But I would say this happened precisely during the period of slowing growth overseas … this is still an economy that faces slow times but not a recession.”

16-year low

However recent data on the US housing market suggests a grim outlook for the sector.

US house prices were down a record 15.4% in the April to June quarter compared with a year ago, according to a closely-watched report released earlier this week.

The decline was recorded by the latest S&P/Case-Shiller survey of US national home prices.

The report said the fact that the falls were nationwide was the latest sign the US housing downturn is continuing.

Separate government data said sales of new homes were at an annual rate of 515,000 units in July, up slightly from June, but still near a 16-year low, and half the rate of new home sales one year ago.

News reported by The BBC

The US government has announced sweeping measures to shore up the nation’s two largest mortgage finance companies Freddie Mac and Fannie Mae.

The plan calls on Congress to expand the companies’ current line of credit and allow the Treasury to buy equity capital in the companies if needed.

Freddie Mac and Fannie Mae guarantee almost half of all US home loans.

Their share prices fell nearly 50% last week amid fears that they might have trouble raising money.

Announcing that new credit lines would be sought from Congress, Treasury Secretary Henry Paulson said: “Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current form as shareholder-owner companies.”

He added that their “support for the housing market is particularly important as we work through the current housing correction”.

The Federal Reserve also said it would lend to Fannie Mae and Freddie Mac if they need additional funds.

The two firms play an important role in the financial markets in providing funding for home loans by buying up mortgages and packaging them as investments.

As mortgage backers, the companies have had to pay out when homeowners have defaulted on their loans.

Both firms defended their finances, saying they had enough capital to weather the housing slump.

News reported by BBC