LONDON, Aug 14: World stock markets fell again on Tuesday, as another giant swing in sentiment sent markets in Europe and the United States tumbling during another day of volatile trading.

US shares opened higher but fell in late morning trading, while Europe's main markets closed sharply lower, with London hit by the turn in direction of the US markets.

Tokyo and Hong Kong had closed higher earlier in the day, leading analysts to suggest that calm was returning to markets after four days of turbulence linked to problems in the US housing market.

Traders pointed to the re-emergence of rumours that more banks and hedge funds had been hit by financial losses from bad investments in high-risk US subprime home loans.

A dealer in Paris said that US hedge fund Sentinel had asked US regulator the Commodity Futures Trading Commission whether it could stop withdrawals from its funds as investors fled exposure to subprime loans.

“Everything is going south again,” said the dealer, also noting other rumours that French banking group Societe Generale was planning to announce losses by one of its investment funds.

In late morning trade in the US, the Dow Jones Industrial Average had fallen 0.76pc to 13,136.22, while the tech-heavy Nasdaq composite had lost 0.45pc to 2,530.73.

The broad-market Standard & Poor's 500 index was down 0.77pc to 1,441.73.

In Europe, the London FTSE 100 index closed down 1.21pc at 6,143.50 points, in Paris the CAC 40 fell 1.63pc to 5.478.66, while in Frankfurt the DAX closed down 0.66pc at 7,425.07 points.

Stocks worldwide had plunged last Thursday and Friday before staging a recovery on Monday.

Earlier in the day, an economist at investment bank Calyon, Stuart Bennett, had predicted that any new warnings about subprime-linked losses would spark more selling.

“It is unlikely that we are out of the woods yet as it will only take some bad news on hedge funds, or funding problems to reignite fears,” he said.

Investors are worried that losses by banks that are exposed to problems with subprime home loans will lead them to suspend normal lending practices and restrict access to credit for companies and investors.

This has led central banks around the world to pump money into the banking sector to give banks sufficient liquidity to continue lending.

European Central Bank president Jean-Claude Trichet said Tuesday that money market conditions were returning to normal and called on investors to keep their “composure.”

The bank injected an additional 7.7 billion euros into the eurozone banking system on Tuesday in the latest action to forestall a credit crunch.

Elsewhere on Tuesday, the Bank of Japan moved to withdraw billions of dollars of emergency funds it had put into the banking system.

The Tokyo Stock Exchange's benchmark Nikkei-225 index of leading shares gained 0.27pc to end at 16,844.61 points on Tuesday.

Jeremy Batstone, an analyst at Charles Stanley stockbrokers, warned that market volatility was likely to continue.

“This entire period of economic expansion has been built on a vast amount of debt,” he said.

“Increase the cost of that debt, tighten loan conditions and one might be in for a bit more than just risk aversion,” he said.—AFP