Traders are highly sensitive to any evidence that housing market woes in the United States have had repercussions for banks or investment funds in other parts of the world as they seek to evaluate the scale of the problem.

Analyst Millan Gudka at investment bank Dresdner Kleinwort summed up the mood on the markets, which have dropped sharply in recent weeks, after French bank BNP Paribas said Thursday that it had been hit by the subprime problem.

“Given the kind of state of the market, you only have to mention subprime for people to start panicking,” Gudka said, commenting on the sharp falls on equity markets Thursday.

So far, U.S. investment bank Bear Sterns, Australian bank Macquarie, German group IKB, British lender HSBC and now BNP Paribas have all revealed losses as a result of their exposure to high-risk, high-return securities linked to subprime loans.

A tightening of borrowing conditions by banks, as they seek to avoid more losses and cover losses already incurred, is the immediate consequence of the subprime crisis, raising fears of a credit crunch.

The big fear is that mortgage defaults by subprime homeowners, those with patchy credit histories who are high-risks borrowers, will cause such a tightening of borrowing conditions that it will drag on consumer spending.

Any fall in consumer spending or corporate activity as a result of restricted access to credit would slow overall economic growth.

A strategist at French investment group Arkeon Finance, Arnaud Riverain, argued however that the subprime problems would not lead to a crisis on stock markets because the world economy was strong and companies were cash-rich.

“The situation would be much more problematic if our economy was having difficulties, or if we had companies with financing problems,” he said.

“We could then have a serious fall on global stock markets.”

Another strategist at French bank Natixis, Nordine Naam, was more alarmist, saying: “We are seeing the start of a credit crisis.”

Other analysts praised efforts by the European Central Bank and the Federal Reserve to provide liquidity to banks and soothe twitchy markets.

The ECB made a record cash injection into the eurozone banking market Thursday of 94.8 billion euros (US$130.2 billion) — more than the bank pumped in after the Sept. 11, 2001 attacks rattled world financial markets.

The ECB said 49 banks took up all of the funds offered at a rate of 4.0 percent to offset a liquidity shortage in the money market.

Analyst Aurelio Macario at Italian bank Unicredit said the central bank had helped ease fears of a credit crunch and the action would help settle stock markets.

“The ECB’s swift reaction shows this is a proper work of a central bank and so now things have calmed down, at least for the moment. It was a panicky market today,” he added.

Others argued that the ECB’s intervention had heightened worries and demonstrated the seriousness of the situation.

“When the ECB starts being vocal about injecting liquidity, if they ever wanted to create a sense of panic, that would be the way,” said analyst Tom Hougaard at London-based spread-betting group City Index.

The Federal Reserve made a more modest US$24 billion available to commercial banks Thursday.

Stock market falls started Thursday when BNP Paribas said it had suspended three funds exposed to U.S. subprime loans because of difficulties in valuing them.

“If BNP Paribas can’t value their portfolios and as a result have to freeze them, it’s really not good news. If they can’t value them now, when they can they value them?,” said Hougaard of City Index, who took a dim view of market prospects.

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