PARIS, Aug 16: World leaders on Thursday insisted that the US subprime crisis would not cause an economic downturn but stock markets across the world plummeted again as investors appeared unconvinced.

US Treasury Secretary Henry Paulson admitted that American growth would be hit but said the world could weather the storm because it came “against a backdrop of a very healthy global economy with strong fundamentals.”

French President Nicolas Sarkozy said he was confident the fallout from US credit markets would have no long-term effect on growth, while Australia’s Prime Minister John Howard said the economy could withstand the shock.

But their words failed to convince stock markets.

“There’s a growing fear that the turmoil in the credit markets, along with rising investor fear, could start to undermine the global growth and strong company profits story, and the markets could be at the start of a negative spiral,” said John Noonan, an analyst at Thomson IFR Markets.

Investors are worried about a global credit crunch as more banks and investment funds around the world reveal their exposure to the slumping US subprime, or high-risk, home loan sector, analysts said.

The fear is that banks will suspend normal lending practices as they move to cover their losses, thereby restricting access to credit for investors and companies.

Central banks across the world have since last week pumped tens of billions of dollars into the banking system, offering loans at lower rates to commercial banks to forestall a credit crunch that could damage economic growth.

The US Federal Reserve flexed its financial muscle again on Thursday, injecting $17 billion more into the US banking system, while the Bank of Japan said it would release an extra further 400 billion yen to calm frayed nerves.—AFP