NEW YORK, Dec 26: The US housing meltdown and credit crunch, which brought a swift end to an investment bonanza earlier this year, is likely to give Wall Street a stiff hangover during 2008, market strategists say.

A flurry of private-equity-fuelled buyouts and corporate takeovers helped propel the Dow Jones Industrial Average to an all-time record high of 14,164.53 points in early October, but the Dow has swooned since then as the housing downturn has worsened.

Investment strategists said the housing slump, now almost two years old, and a related credit squeeze that has triggered multibillion dollar losses at some of America’s biggest financial firms, may temper stock market advances in the coming year.

“Growth has clearly slowed in the fourth quarter in the US,” said Steve Bleiberg, president, Legg Mason Global Asset Allocation.

Bleiberg said the over-riding concern for US investors in the coming 12 months would likely be the health of the credit markets and whether companies would be able to tap fresh capital.

Credit flows have tightened because big banks have lost billions of dollars in mortgage-related investments, which has forced them to curtail lending and triggered efforts by central banks to boost liquidity.

Overseas stock markets have also been singed by the pullback in US shares as foreign investors had also gorged themselves on US mortgage-backed securities during the housing market’s boom years.

Some analysts believe the housing and credit woes could destabilise the wider US economy, or even trigger a recession, which would further depress Wall Street sentiment.

“A recession in 2008 is a possibility, but the stock market always faces unknowns and unknowables. Consumers are feeling worse about economic conditions and future prospects.” said Al Goldman, a chief market strategist at AG Edwards.

US investors are on tenterhooks awaiting to see if big retailers’ earnings will be clipped over the crucial Christmas holiday shopping period by consumers reining in their spending.

Strategists do not expect a mortgage rescue plan, essentially for Americans with patchy credit holding subprime home loans and backed by President George W. Bush, to significantly bolster Wall Street.

Some analysts believe the plan may just delay further property foreclosures.—AFP