More than £29bn was wiped off the collective value of companies in the UK's FTSE-100 index of leading shares yesterday, as investors took fright at French bank BNP Paribas's decision to freeze funds worth 1.6bn (£1.08bn) amid the US sub-prime mortgage crisis.
The FTSE-100 continued its recent rollercoaster ride by finishing 122.7 points lower at 6271.2. This reverse followed a total gain of more than 200 points in the previous two sessions, with the index having risen by 119.7 and 85.1 respectively on Tuesday and Wednesday.
The index closed at 6732.4 points on June 15 - its highest close for nearly seven years. It began a steep descent around the middle of last month.
In New York, the Dow Jones Industrial Average was weak from the outset yesterday. It tumbled 387.18 points to close at 13,270.68.
Explaining its decision to bar investors from redeeming cash in three funds, which account for less than 0.5% of its total funds under management, BNP Paribas said: "The complete evaporation of liquidity in certain market segments of the US securitisation market has made it impossible to value certain assets fairly, regardless of their quality or credit rating.
" BNP Paribas Investment Partners has decided to temporarily suspend the calculation of the net asset value as well as subscriptions/redemptions, in strict compliance with regulations, for these funds."
It said the funds affected were the Parvest Dynamic ABS, BNP Paribas ABS Euribor and BNP Paribas ABS Eonia funds.
Valuation of the funds would resume as soon as liquidity returned to the market, it added.
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