World stocks tumbled today after BNP Paribas became the latest bank to be hit by mortgage credit problems and shortage of cash in money markets prompted the European Central Bank (ECB) to add emergency liquidity. The French bank froze more than $2 billion worth of funds as problems in US subprime mortgages — riskiest property loans, often extended to people who have payment difficulties or a bad credit history — and diminishing liquidity prevented it from calculating their value.

The news sent shivers through markets — including India — already nervous that troubles in US mortgages would spread globally, hitting banks and the broader financial system. Investors rushed to buy safe-haven bonds and the low-yielding yen to preserve capital. The BSE Sensex witnessed an intra-day fall of over 400 points. The ,Sensex which had shot up by over 200 points in the morning session, fell sharply and closed 208 points down as European stocks slid on heightened concerns about the fallout from problems in US subprime mortgages. The Sensex, which soared by 345 points on Wednesday, lost 1.36 percent, or 207.83 points, to end at 15,100.15.

The FTSE-100 of the UK fell by 102 points to 6,291. Reversing a three-day winning streak, the Dow Jones industrial average of the US was down 183.56 points, or 1.34 per cent, at 13,474.30. As many of the Asian markets closed by the time the BNP news spread, they escaped the selling wave.

“The BNP Paribas news has really come at a very bad time. It clearly shows that we are not out of the woods yet so far the credit problems are concerned,” said analyst Deepak Singh. “When a sharp bounce back doesn’t sustain for long, then even die-hard bulls start to liquidate their positions and that’s what we witnessed today. The market is going to be extremely volatile with a downward bias in the short-term,” he said.

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